Housing Crisis in San Francisco: The podcast discusses the severe housing shortage in San Francisco, exacerbated by restrictive zoning laws and complex permitting processes.
Regulatory Challenges: San Francisco's housing market is heavily constrained by onerous zoning regulations and a discretionary permitting process that creates significant barriers to new housing development.
Black Market for Housing: Due to regulatory constraints, a black market for housing has emerged, where developers and individuals bypass official channels, leading to unsafe and illegal living conditions.
Comparison to Drug Markets: The podcast draws parallels between the housing black market and illegal drug markets, noting the lack of legal protections and increased risks in both scenarios.
Property Rights Issues: The discussion highlights how San Francisco's regulatory environment undermines traditional property rights, likening it to a system where ownership is nominal and heavily controlled by government mandates.
Potential Solutions: Suggested reforms include abolishing or significantly deregulating zoning laws, eliminating discretionary permits, and adopting a "right to build" amendment to streamline the housing development process.
Broader Implications: The issues in San Francisco are reflective of broader challenges in urban housing markets across the U.S., where local regulations often stifle development and exacerbate shortages.
Transcript
Welcome back to Radio Rothbart. I'm Ryan McMaken, executive editor at the Mises Institute. And this week, we're going to talk a little bit about housing in California. And I I I can't imagine that my audience would be particularly opposed to trashing California and its government, especially the government in the Bay Area. And so to help me do that today, I have Christopher Calton back on the show. Uh Chris is a historian by trade. Uh he works currently for the Independent Institute doing uh a v variety of writings on policy related to housing for the most part. So I've had him on in the past talking about rental housing and for sale housing and he has an article that recently came out that he wrote for the Independent Institute and I'll I'll reprint it at mises.org or which uh the people at Independent were nice enough to let me do um historically. And uh so we'll put it there. And the uh the name of the article is San Francisco has a black market for housing. That's as bad as it sounds. And you can see that at independent.org or at mises.org here going forward. So as you can imagine, if you're paying attention at all, people out there, you probably know that the housing situation is expensive in San Francisco, in the Bay Area in general. uh that there's not a lot of housing being built, that they have a lot of problems in terms of just can a normal person even go there and and get get a house, get an apartment even. Uh so I I think Chris, I'll just start by uh throwing it to you and say kind of describe the housing situation in uh in the Bay Area right now and why it led to this black market uh situation. and then we can kind of get into a talk about how black markets are trying to address this issue and and this sort of thing. So, but just give us the big picture about why housing is so unaffordable in San Francisco. >> Yeah. Well, the why housing is so unaffordable in San Francisco is a multi-part answer because no single regulation can make things this bad. It's a confluence of multiple bad regulatory policies that do this. But the the simplest answer would be uh very ownorous zoning policies. is the zoning code there is like a million words uh something close to that. I think in 2016 it was over 800,000 words so it might be a million by now. Um very very strict zoning regulations that largely uh build around low density zoning. So there a lot of regulations and this is common in a lot of cities across the country. Denver around, you know, in Colorado is is one of the worst as well where they they want to deter population growth and this was a big thing in the 1980s. Uh they want to deter population growth. So they put all these regulations on like minimum lot sizes and parking requirements and all these things that make it harder to deliberately to make it harder to build houses and especially apartment buildings. They don't want apartment buildings. Uh the other one in San Francisco is unique because it subjects every building permit uh to discretionary review which means that you know even if you meet the zoning regulations even if you're code compliant uh you still have to to beg and bribe your way to a permit because city planners can say no we don't you the color of your house doesn't fit the neighborhood or or we don't like you personally so we're not going to deny and every single building permit has to go through this discretionary review process sometimes many times over uh many times over is often a product of uh lawsuits and other conflicts raised by California's environmental uh uh uh review law uh called SQA California environmental quality act which requires them to go through this rigorous process of environmental review and then people in the in the region can basically threaten a lawsuit or wage a lawsuit and make you go through this process multiple times, go through discretionary review multiple times, and and there are other things on this. There's uh crazy union labor rules where it's like if you're a developer, you have to pay, you know, union labors this certain amount that raises costs tremendously. So, it's just this confluence of really misguided regulatory policies that work together to make it nearly impossible to build housing. So to give a picture, uh San Francisco has one of the worst housing shortages in the country. And so the California uh state government actually passed quotas for for every like major city in California saying you have to permit this many houses within 10 within 10 years. Uh I think we're like halfway through this now and San Francisco has done a fraction of what they're supposed to do. They just can't. They so hard to say yes to a house even if city planners want to. uh these neighborhood groups called nimbies, not in my backyard. They make it so difficult under this discretionary review process and environmental law, they make it so difficult to get anything built that even when planners say yes, they still face these roadblocks. So, it's it's just almost impossible to build anything there. >> Yeah. And I I think people need to uh have an idea of just how unusual this this whole discretionary permitting thing is. Uh I remember in my days at the division of housing in Colorado, right? You would go to these planning commission meetings and stuff and it was all pretty straightforward in terms you have to do XYZ in order to build. Now in many cases XYZ was a lot and very expensive, >> right? >> But if you just showed that we did XYZ, they just it was just a rubber stamp, right? Okay, great. They did the things. Go ahead and build. There wasn't any sort of debate. There wasn't like you having to lobby the members of the commission. And so now you might lobby them to not add additional requirements that they were constantly doing. But that applied to everybody. It wasn't this discretion down to do I like this particular project or not. Is this project near my house and I just don't like it because I just don't like the way it looks. That sort of thing. But you would hear about that like in some small mountain communities where it was like extremely wealthy people, that sort of thing. but normal suburbs that just wasn't an issue. But it seems like this is just a major problem now uh for the Bay Area in general and that just adds a whole other layer. Uh >> yeah, >> and not just the Bay Area to put discretionary permitting because this is one of my big bugaboos that I harp about a lot because it's just so, you know, I'm from Florida where it's so easy to build like this is just such a foreign concept to me. Uh but discretionary permitting the way it usually works because a about a third of California cities and and several other cities in the United States have discretionary permit for for a lot of things that you have to get. But the way that it it typically works is you have these really ridiculous zoning codes that are very difficult to be compliant on and it makes it where like building an apartment complex is unaffordable. So LA for instance, uh not in the Bay Area, but in California, um anything any apartment building with 10 or more units uh has is basically illegal uh for for all intents and purposes. And so you have to get a discretionary permit to bypass that zoning law, right? That's the way it usually works. And and that's what I call permissive discretionary permit. You get a ministerial permit, which means as long as you're code compliant, you automatically get a permit. uh you get a ministerial permit if you're able to abide by the the planning code. But if you can't do that to be affordable, you have to seek an exception. That's what I call a permissive discretionary permit. A restrictive discretionary permit is one where they just blanket say the answer is no to all permits until you come and beg us and and bribe us and whatever you have to do uh to uh to get a a a permit. And so that's what San Francisco does. uh even if you're code compliant, even if you're code compliant, you still need a discretionary permit. Uh and and so it's just a tremendous bottleneck to housing there and it leads to uh significant corruption. My first article with the Independent Institute, which was also published in the San Francisco Chronicle, was on this issue. There was a huge corruption scandal uh in San Francisco City Hall. It's still kind of ongoing uh based on people bribing uh regulators for permits in San Francisco because it's the only way to get things done. >> Well, and so I mean the the way you describe it, right, you cannot get this product below a certain price, right? The the supply of this product has been hugely constrained by government regulation. And this of course uh reminds us of certain other products, non-real estate products, I mean drugs, right? you you cannot obtain certain drugs below a certain price either because they're heavily regulated, i.e. prescriptions, something like that, or they're just straight up banned in many cases. And so, and this gets to your next point then. And so, what is the what is the response to that? The response is to then try and sell these things illegally in some way under the radar in a gray or black market. And so that that is something you you talk about a bit in your article, right? Is the the situation is so bad in terms of regulation, in terms of just outright prohibition of various types of housing >> that a black market is arising. So what does this black market look like? What what are some of these methods that have been tried uh to to bring housing onto the market but in a in an illegal or or invisible way? Well, some ways it it seemed like especially to us would seem like completely benign like uh the I open the article talking about example of some developers that are just facing hefty fines because they were you know permitted to build I I don't know the exact numbers but they were permitted to build 30 units and they built 50 instead right like oh my gosh in the city with a major housing shortage that's uh coming up short in its statemandated quota to build more housing they're fighting people for building more housing I mean it's ridiculous Right. So those are cases where I think most normal people would say this is absolutely absurd. But it also manifests in other less benign ways. Uh like this uh this one example where somebody was renting an apartment to a friend and the apartment was like a wooden box he built in his room in his living room of his apartment. You know it's like okay well now that's that's the kind of thing that I don't think you would see in a free market for housing, right? Like this is like a really weird substitute. The worst example of this uh didn't even make it into the article. It was in Oakland, not San Francisco, right across the bridge. Um, but it's the ghost ship warehouse was like renting out rooms illegally to people. And uh there was a fire in 2016 at this called ghost. You Google ghost ship warehouse fire. There's a whole Wikipedia page on it. Like 37 I think 37 people died in this fire, right? This was black market housing in Oakland, you know? So, it's like you're putting people in this awful position where there's such a scarcity of housing that to stay off the streets, they're having to rent these horrible, horrible rooms. These are not these are not free market products here, right? These are products that only exist and only have a market because of suppression of the free market, right? This is not the kind of thing we saw uh even under the the heyday of tenementss when everybody was, you know, up in arms over the poor condition of tenement apartments. like this is not the kind of thing you saw even then. Right. So these are these are the the worst I guess outcomes of of these black market manifestations. >> Well, you make a good point here in the article as to the issue of black markets. You note that black markets are not just free markets. Right now you and I we've hung around libertarian types for a long long time. And sometimes uh people will make this uh remark that they think is clever, which is that well I thank goodness there's black markets cuz that's just free markets peeking through uh the veil of government regulation. The problem is is that as you note in the article, they're not really free markets because in a truly free market there would be actual contracts that would be ar that would be subject to arbitration by a third party whether government or private. Uh and there there would be actual secure property rights based on contractual >> legally protected property rights. Right. Would agree on the best illustration of like why that's important is is drug the black market for drugs, right? Where they don't have secure property rights. So how do they protect their property? Well, they do it by forming violent gangs and shooting each other, you know, willy-nilly. I mean, that's that's how they secure property rights in the absence of legal protections, right? So, it's very very important that you have legally recognized and legally protected property rights. >> Yeah. You buy protection from some sort of gang, mafia, mob, whatever. And that's the way you do it because you can't get protection from the actual sanctioned regular government. And and that's the problem with black markets, right? Is you you don't there's not usually not a written contract of any kind, right? It's usually just some oral agreement. So, there's not a paper trail. And then how do you enforce your property rights or what's been agreed to? And I want to qualify especially for the anarchists listening to this is you don't actually need a sanctioned government for legally protected property rights. Uh property property law is a development of the common law. It doesn't depend on government. There are examples in history of property rights uh being enforced by private uh law. Uh there's libertarians that have written about this. Uh there's private adjudication firms that handle like international trade. Right. So, so we have a, you know, the government has a a monopoly on certain aspects of the law. We have private and public law in this in this country. Uh, but legal protection doesn't actually necess necessarily mean by a sanctioned, you know, coercive government. >> Well, you clearly don't need a state, right, in that organization. We now >> you need a governing entity, but you don't need a state. That's a good clarification. >> Which only came into being in about the 16th century. It's not like there weren't uh contracts and property agreements and and property rights before then because as you say right there can be this adjudication that that can occur. But but this doesn't occur in black markets because there there's no one no one is interested in adjudicating them in in a way that's not at least in in the gang >> because you have the the sanctioned government saying this is illegal. They actually prevent these these private mechanisms for legally protecting property rights from arising because the state claims a monopoly on the right to do that and then they they block any alternative. >> Yeah. The state would clearly prosecute any organization that tried to step in and act as a third party adjudicator in these sorts of cases. So it's just you don't have access to it. So it's impossible and you don't have real property rights then in those cases. Well, you do in the natural law sense, but not in any sort of administrative sense, uh, when when you're functioning in black markets. And so, that's a problem. So, yeah. So, I agree with you. We don't want to say black markets are fine because they're just private. >> And and one other point about like the the difference between black markets and free markets is there is the regulatory aspect, right? So, what a lot of libertarians say is they say, "Well, black markets are free markets because they don't have regulation, and that's a good thing, and that's where they're coming from." But they're only referring to a specific type of regulation. There's three types of regulations, right? One that I call like statutory or bureaucratic regulation is the one they have in mind. Black markets don't have that. We don't, you know, we don't support those kinds of regulations. But the other two types of regulations are very important to free markets. And that would be tort regulation which kind of goes back to the property rights. This is a private aspect of law where you know if somebody does something irresponsible uh with their you can sue them right like the warehouse fire you can sue right you can sue and that exerts a regulatory effect. The infamous McDonald's coffee case is actually a really good example of tort regulation working. This was not a frivolous lawsuit as it's often made out to be. This was when McDonald's was storing their coffee at these ridiculously high temperatures that weakened the integrity of the cups they served it in and would cause thirdderee burns a after like 5 seconds of contact with your skin. And so they had a ton of lawsuits over people spilling their coffee on them and getting severe burns and McDonald's was paying out these pitily sums. So this infamous case was I think the judge said 2% of coffee sales or two days worth of coffee sales or something like that came out to a couple million dollars for this woman. And the next day, the very next day, without uh the coercive arm of government stepping in with any kind of statutory regulation, McDonald's and every other fast food chain started storing their coffee at safer temperatures. That is the regulatory effect of the tort system. So, it's it's very useful and that is an aspect of private law. This is something that that would exist in, you know, an capistan. Uh then the third type is market regulation, right? Libertarians do talk about this. I I think tort regulation is the one that gets neglected. So, I like to harp on it a lot. But then market regulation is the competitive mechanisms of the market that creates incentives for people to improve the quality and lower the price. And in black markets, you don't have that either because black markets are a product of stifled competition. Right? Again, the drug trade has this. These drug cartels, they're not operating in a competitive free market. They're cartels for a reason, right? They're legally they're legally protected by the government's prohibition laws to operate as cartels rather than competitive entities. Right? So you don't have that like these regulatory mechanisms that are inherent to the free market. You don't have them in black market. So it's an important important distinction. >> You know, I can't let this pass without commenting on it. The whole McDonald's coffee thing, right? And of course, I used to be like everybody else where, oh, it's so ridiculous, right? >> They made fun of it on Seinfeld, right? >> Well, and people bring it up to this day. Usually an older demographic, but people will bring it up and they're like, "Oh, that's so dumb. Why can't What happened to personal responsibility?" And of course, I used to I used to just assume that, yeah, of course, it's a frivolous lawsuit. But then I was talking to a hardcore hoppian attorney, right? A guy who's just as free market as you can get. But he had actually read the case because he was an attorney and had to use the case in some case law research he was doing and he said yeah it wasn't a frivolous lawsuit at all sustained scarring hospital for weeks because of the spilled because they stored it at such a high temperature it would do severe burns instantly >> contract right I mean when you buy coffee from a restaurant it's kind of a it's it's it's implied that they're not going to give you coffee that's so thought that it will require skin grafts, right? I mean, it's >> so a violation of that would imply some sort of problem, some sort of tort problem as you say, right? And then we have a we have this third party arbitrator to do this. Again, it doesn't necessarily have to be a state. Could be just some other >> tor system is private. It it is a private system. It's not part of the state in this country. Yeah. >> Yeah. It wasn't a criminal prosecution. And and so yeah, so I just wanted to mention that, you know, and I always bring this up. I think I brought this up in a pollution article. You've mentioned this in one of your pollution articles as well. So, we've both made this point is the problem with statutory regulation in many cases is that it actually protects people from poll. You had an a pollution article where you said that, you know, uh carbon limits and things like that. They actually protect a company from being sued up until they reach that that regulated limit. So statutory regulation, one of the major problems with it is it provides protection against legitimate lawsuits from these companies because tort regulation is based on outcomes where a statuto bureaucratic regulation is like anything. It's about procedure and policy. Uh and so you know if you if you pollute up to the regulated limit, you're you're even if your pollutants cause cancer or whatever like that, you know, you're protected. You can't be sued, right? So statutory regulation undermines both market and tor regulations but black markets don't have any of them. >> Yes. Right. Yeah. We should note that there is an excellent magisterial I might even call it long article by Rothbart on the issue of how to use law and private law in the regulation of pollution and uh environmental issues and it's as you say right actually you would probably have more people more constrained more regulated through the tort law than are regulated in terms of pollution polluting a water supply polluting the air near your house near your farm those people would actually be more open to lawsuits and and having to to pay some sort of retribution um than they are under the current regulatory system. The problem you get is from alleged free market. Uh people I've seen even libertarians have written articles, well we can't go the Rothbard way because that's not efficient. It's clearly more efficient to have some level to have a higher level of pollution in the economy so you could have more GDP or whatever. Whereas Rothbus has taken a natural law position. He's like, "Look, you're polluting my water. I don't really care what you think is the the society efficient level of pollution in my backyard. And so Rothbart actually took a hard line on environmentalism, whereas these uh these less Rothbartian people who supposedly are more reasonable are actually saying, "Yeah, we want more pollution." >> Yeah. There's there's uh I I've thought this for a long time. There's a lot of libertarians that focus so much on the economic side of things. They lose that they lose sight of the legal aspect of libertarianism. And this is the legal aspect. We, you know, libertarians don't talk about the tort system enough or common law enough. Uh because you you need the legal side. There are certain things that economics can't answer in terms of like human conflict. Uh right and that's where a private legal system is so important and and torps are a part of that >> and you can't avail back to the topic. You can't avail yourself of any of this, right? If you're you're doing housing through a black market, right? There's just not the predictability, there's not the reliability. You can't just go hire an attorney and have this all worked out. Plus, you're probably then dealing with really shady people, too. Um, yeah, you might say, "Oh, slum lords are pretty shady." Well, they're not as shady as the guy who's like trying to, you know, do some sort of back alley deal with you in terms of putting you on a boat in the middle of a bay. So, that's just a very different uh situation. >> And, you know, there's other things like insurance that you don't get on the black markets, that go ship warehouse fire. How do you ensure against that when it's illegal, right? Like, so I mean, there's so many things that are missing in the black market because they they have to operate underground that that are important to to free markets >> and just basic renters's insurance, right? Say you are renting like in some sketchy neighborhood. At least then you don't lose everything you own with no compensation, >> right? >> Uh because you can't get renters's insurance. >> You're right. You can't do any of that on a black market. And because insurance companies for good reason, they just don't want to be involved, right? I mean, that's not even necessarily a government regulation. Uh, and you you know, I I would just note that this this this applies um also to an earlier article you had written on decriminalization of drugs where you had talked about how there's a c I've gotten emails from these people who are like, well, you should just decriminalize uh drugs. you shouldn't actually legalize them because then legalized drugs they have government regulation that goes along with them and that's worse than just sort of this gray market in drugs. But again, yeah, it opens it up when it's legal opens it up to some forms of uh government legislative regulation, the the bad type as you note. Uh but again, you're not able to avail yourself of see if I walk into a dispensary in Denver and I buy some sort of pot and it's bad and it caused me like a major health problem or something. I know who to go back to and who to sue. >> So in many ways obviously that's better in terms of the common law and stuff full legalization rather than this decriminalization thing. So that would seem to apply in this case as well. >> Abs. Absolutely. Like I've always said uh libertarians uh who argue that decriminalization is better than legalization. Decriminalization is a red herring because it still subjects the supply to the black market and that's not a good thing. Right? This is where like dilutants like fentanyl and xylazine these deadly deadly pollutants they they are a product of the black market. There's a reason why the only drugs that you can comfortably uh know do not have fentinel in them are the ones that you can buy legally. And it's not because of the the regulation against fentanyl. People might attribute it to that because that does exist obviously, but you know, imagine a world where that regulation didn't exist and then somebody was buying cigarettes and that was laced with fentanyl, they overdose and die. That's going to be a lawsuit. Uh so you know these companies, should that exist, there's going to be Marbor is going to come out and say uh here are fentanyl free cigarettes, right? They're going to make it a branding issue. That's exactly what people do. Just like caffeine-free soda. Some people don't want caffeine. It says caffeine-free right on the right on the the can of of like mug root beer to distinguish it from barks which has uh caffeine in it. You know, so it's like this there are solutions to this in the market that this is what we call market regulation. You don't have that in the black market because who do you sue? Nobody. You can't sue anybody. How like is there any brand consistency? Certainly not when your dealer can be arrested tomorrow like any any consistency that you might have if that black market chain of supply gets disrupted it can change right uh potency of of hard drugs is very unpredictable because of this where it's like a lot before fentanyl a lot of the over the main cause of overdose was people didn't know the potency of what they were getting so uh dosage was guesswork right and and uh you know one of your dealers gets arrested or something and the next guy doesn't cut the heroin as heavily, you know, so you get pure heroin and you don't know it and you overdose. So, black market is not where you want the drug supply. Uh, so it's a very good example of of exactly the problem with black markets and why decriminalization has been such a disaster where it's been tried. I'm all for legalization of drugs. I've been harping on that for years as longer than you've known me, right? But decriminalization is a is it might be a lesser evil for like incarceration and whatnot like prison rates but decriminalization is is absolutely a red herring. It's still subjects that to the black market and that's not what we want. Mark Thorne, by the way, has done some good work on how not only is potency unpredictable when there's a prohibition situation, but in many cases, prohibition actually encourages increased potency because then you're able to move more of your active ingredient around in in uh in smaller volume when it's more potent. So, there are other issues. >> This was his uh underappreciated dissertation work. And you know, I think Mark Thornton is the single most underappreciated scholar at the Mises Institute. He does phenomenal work that he doesn't give credit to. The iron law of prohibition is a concept that's uh become kind of widely circulated uh in the past decade. And this is a this is the concept of that he discovered in his dissertation work. He almost never gets credit for this. Mark Thornton uh is very very underappreciated on this this work. Well, and then of course, so when you've got all of these units then that uh are not subject to market uh regulation, right? Uh I'm just going to take whatever I can get. I don't have a written contract. If something happens to me, it's unclear who I can sue. It's unclear what my recourse is. It's just an extremely inefficient system. And I don't mean that kind of in the strictly economic sense, just in terms of something bad happens and you just don't know what to do next. there is no like set system like there would be in a in a true system where your property rights uh are protected and uh so that that would seem to be a problem. Uh >> I mean you you I can immediately recognize the inefficiency of the drug market with the fact that they have to produce like three times as many drugs as actually make it to the market because of all all that gets picked up in these drug busts that the government likes to advertise. Now maybe that's an inefficiency a lot of people would be comfortable with, but it is an inefficiency. you know, it's a significant one. >> Well, it just causes so much chaos then for owners. Uh, and you have a a great line here in the article. It says, "San Francisco's black market for housing is the direct outcome of the city's abandonment of private property rights. San Franciscans can still own property, to be clear, but the rights traditionally attached to it are wholly subject to the whims of the populace." Right? So, there's a there's a there's a surface sort of property ownership, right? But if you but if your dictate as to how you could use it, you don't really have property rights, right? >> Yeah. It's it's the it's fascist property rights. And I mean that very literally, right? Under fascism, uh fascism was very much inspired by socialism. Um Mises would call it Germanstyle socialism because it was still a command economy. But what happened under fascism, Nazi Germany, Italy, is you had titler property rights. You owned the title to your property, right? But what you could do with it was dictated by the state. That's why Mises called it uh socialism. Socialism of the German variety as distinction from the Russian variety where the state just seized the property because the what the state was doing was fundamentally the same thing. The only difference is the Bolshevixs put a party member in charge of the plant and the Germans as long as you weren't Jewish let you keep keep ownership of the plant. But you had to do what the state you had to produce the quantity that the state said. you had to produce what the state said. Your your prices were set by the state, right? It was still a command economy. So you you had private property, but you didn't have private property rights. And that's a very very important distinction in situations like this. So that's the case in San Francisco. You can own a house, you can own a piece of land, you can be a developer, you own apartment building, whatever it is. Uh but but what you're allowed to do with it is not dictated by you. It's dictated by the government. And in the case of San Francisco, often just by the general population because of this discretionary review process. >> Well, and I think then then the last question is is how do you start to move back in the right direction? Now, I think for a lot of our our listeners, this can be obvious, right? You need to regulate less. You need to allow more housing to be built. But just as baby steps, right? What should be the first things that San Francisco needs to do just to get out of this this horrible situation where it's just reached the point where yeah, we've got to sell illegal apartments now. We hey kid, you know, I know where I can get you an apartment sort of thing with no legal protections. It's unsafe and you have no recourse. Hey, but and we'll we'll deal it all with a handshake. I mean, this is not ideal at all. In fact, it's it's actually really bad. And so I mean just the first couple of things what should San Francisco do? Obviously real estate is one of the most regulated industries in the whole country. Uh I don't know how right I remember back during 2008 the financial >> it gets overlooked because it's local regulations which is not where we usually find them. So a lot of people like overlook how heavily regulated uh real estate is uh because it's it's the most locally regulated industry in the country >> and also at the state level right because we're >> state level too but but like zoning codes are localized right and so it's it's more than any other industry the uh disproportionate share of the regulatory burden is imposed by by local governments and that's uni it's very unique to real estate. So, what does San Francisco need to do really to just uh to start to rebuild the dyke in terms of producing actual real housing? >> Well, I don't think there are baby steps. Um it the problem is so significant that it needs significant reforms. Uh baby the problem with baby steps is and this is what I worry about with San Francisco is they'll pass, you know, they might do some kind of like deregulation that will improve things like say let's let's reduce parking requirements, right? This is a there was a whole book by Daniel Shupe uh or Donald Shupe um who died recently uh called the high cost of free parking that kind of popularized uh the idea of like parking requirements raising housing costs. So we're going to reduce parking requirements, but we're going to leave all the other like minimum lot sizes and things like this in place. Well, now the reduction in parking requirements, it doesn't do anything, right? Because you have these layers of regulations that you have that serve as the same barrier. And so removing one, it's like having eight fences around your yard. You you remove one, people still can't get in, right? So significant zoning deregulation, I think, is step one for most cities in the country that that have a housing shortage. Um, I would actually say abolish zoning. That's simple. Not politically easy, but it's simple. Just abolish zoning. You don't need it. Houston doesn't have it. Never has. And it's below the national average in housing costs as the fifth largest city in the country. It's astounding, right? So, zoning is completely unnecessary. Uh, it it it serves nothing but but harm. Um, so abolish zoning. Short of that, heavily deregulate zoning. You want to talk about specific zoning deregulations. You need uh end single family zoning. There are places that are doing this, but a lot of them are doing it poorly by attaching things like affordability requirements. like if you want to build uh a apartment complex, you have to devote some of your units to being below market rate houses or pay significant fees. And so this kind of undermines the abolition of single family zoning. Uh but but ending single family zoning without those strings attached is is probably the number one thing. End uh minimum lot sizes, minimum square footage requirements, any of these like minimum requirements. End building height restrictions. Um, this is a big one in places like San Francisco, Washington, Washington DC, you're not allowed to build anything taller than the Washington Monument, right? And so, apartments are ridiculously expensive there, even though they're allowed to build up. In San Francisco, there's only one section of the city that's allowed to build up. Everything else uh you know, there was a woman, famous woman, who uh in in a permit hearing uh brought a zucchini to oppose an apartment building near her house. She said, "This zucchini only exists because there's no shadow over my garden." Right? like this is the ridiculous stuff they do there, right? So, uh uh end, uh limitations on building heights, uh end uh abolish parking requirements, which is another thing that a lot of cities are starting to do uh is is uh reduce or eliminate parking requirements. So, these but you need the combination of them if you only do one and not the other. And and the reason why this is important is in the heyday of like downzoning in the 1980s that I talked about earlier is they they invented all these different ways to lower density because the state would step in sometimes and say, "No, you can't do that one. You can't just put like some of them wanted to just put a population cap. You can't do that." So they said, "Okay, well, we're going to put minimum lot requirements, right?" And so they all serve the so many of these regulations serve the exact same purpose. If you remove one and live the other in place, nothing is accomplished, right? And that's where the baby steps I think are are are impossible here. You need you need leaps. Um so significant comprehensive zoning deregulation is thing number one for most cities. Uh in San Francisco and in California in particular, you need to end the system of discretionary permits. A lot of places this would be solved by zoning deregulation, right? Those permissive discretionary permits that I mentioned earlier. you you deregulate and more more uh permits are subject to ministerial approval like the automatic approval. In Houston, the average time it takes to get a permit is about 10 days. In San Francisco, it's measured in years, like literal years just to get an a permit uh for a house or an apartment comp. Like I think it's like 3 years for an apartment complex. It's I mean it's absurd, right? Um my uh my colleague uh Lawrence Mc Mc Mckllin uh he he drafted a proposed amendment to the California Constitution a few years back. I talk about it a lot because I think it's a wonderful solution and it's it's what he calls a right to build amendment where uh this amendment would just say, "Hey, you own this property. You're allowed to you're allowed to build it." I mean, he writes it uh with a little more detail than that, but it's basically a right to build amendment that would impose uh ministerial approval process uh throughout the state. And I think this would be wonderful. It reminds me of um in the in the 19th century, in the jonian era, to charter a corporation, you had to beg your legislature for permission. You couldn't just go up to the the courthouse and fill out a piece of paper and be incorporated like you can today. Um you you had to go and pray to your legislature to to get a a corporate charter. And it was very similar to the discretionary permit process, right? And so what they did and uh then what the Jonians pushed for in the 1840s and 50s were a bunch of constitutional amendments or or new constitutions of the states that prohibited this. Kind of like Lawrence's uh right to build amendment. They said, "Hey, all everybody has equal access to the corporate form." Right? So it's very very analogous to the permitting issues here today where you just a a constitutional amendment that says, "Hey, you have a right to build. You have a right to a permit as long as you're code compliant." I think would be an important stuff. Those are the two biggest things uh that need to be done to fix the housing shortage. Other problems are still there. Building regulations are still ownorous, but zoning regulations I think are much worse. Uh and then uh like union labor requirements do add to the cost of housing. But the big things would be the zoning and the permitting process >> and to a lesser extent just a common issue in so many localities. I mean this is hardly just applicable up there of course. So yes, thank you for that. And we'll go ahead and let that be the last word here on Radio Rothbart. Of course, we'll have you back, Chris. We got plenty more to talk about in terms of nimism. You got some new publications coming out on that. And um so I think I think housing isn't going away as an issue even >> certainly not in California. >> No. And of course there are some areas where demand is going down. >> The LA wildfires like they've issued like 10 permits since these devastating wildfires. like they still they still can't build housing after the massive massive wildfire displaced like hundreds of thousands of people. I don't know the exact number uh from their homes. They've issued like 10 permits. I I mean like California can't get it together. So it's the it's the gift that keeps on giving for us right in trying to trash California. >> Yeah. We need to talk about right that whole uh burndown home never going to be rebuilt thing too uh going forward. >> Hawaii's dealing with that problem as well. is their wildfire. >> Oh, what a nightmare. Yes, I California is a great place to vacation. I love going to San Diego whenever I can. My father was from there. Uh, but you would be nuts if you're just a normal person to own property in California. It seems to me >> I would I you couldn't you couldn't pay me enough to move my family to California. $10 million a year. I'd say no. >> All right. Well, everyone out there, thank you for listening to this episode of Radio Rothbard. We'll be back next week with more and we'll see you next time. [Music]
San Francisco’s Black Market for Housing
Summary
Transcript
Welcome back to Radio Rothbart. I'm Ryan McMaken, executive editor at the Mises Institute. And this week, we're going to talk a little bit about housing in California. And I I I can't imagine that my audience would be particularly opposed to trashing California and its government, especially the government in the Bay Area. And so to help me do that today, I have Christopher Calton back on the show. Uh Chris is a historian by trade. Uh he works currently for the Independent Institute doing uh a v variety of writings on policy related to housing for the most part. So I've had him on in the past talking about rental housing and for sale housing and he has an article that recently came out that he wrote for the Independent Institute and I'll I'll reprint it at mises.org or which uh the people at Independent were nice enough to let me do um historically. And uh so we'll put it there. And the uh the name of the article is San Francisco has a black market for housing. That's as bad as it sounds. And you can see that at independent.org or at mises.org here going forward. So as you can imagine, if you're paying attention at all, people out there, you probably know that the housing situation is expensive in San Francisco, in the Bay Area in general. uh that there's not a lot of housing being built, that they have a lot of problems in terms of just can a normal person even go there and and get get a house, get an apartment even. Uh so I I think Chris, I'll just start by uh throwing it to you and say kind of describe the housing situation in uh in the Bay Area right now and why it led to this black market uh situation. and then we can kind of get into a talk about how black markets are trying to address this issue and and this sort of thing. So, but just give us the big picture about why housing is so unaffordable in San Francisco. >> Yeah. Well, the why housing is so unaffordable in San Francisco is a multi-part answer because no single regulation can make things this bad. It's a confluence of multiple bad regulatory policies that do this. But the the simplest answer would be uh very ownorous zoning policies. is the zoning code there is like a million words uh something close to that. I think in 2016 it was over 800,000 words so it might be a million by now. Um very very strict zoning regulations that largely uh build around low density zoning. So there a lot of regulations and this is common in a lot of cities across the country. Denver around, you know, in Colorado is is one of the worst as well where they they want to deter population growth and this was a big thing in the 1980s. Uh they want to deter population growth. So they put all these regulations on like minimum lot sizes and parking requirements and all these things that make it harder to deliberately to make it harder to build houses and especially apartment buildings. They don't want apartment buildings. Uh the other one in San Francisco is unique because it subjects every building permit uh to discretionary review which means that you know even if you meet the zoning regulations even if you're code compliant uh you still have to to beg and bribe your way to a permit because city planners can say no we don't you the color of your house doesn't fit the neighborhood or or we don't like you personally so we're not going to deny and every single building permit has to go through this discretionary review process sometimes many times over uh many times over is often a product of uh lawsuits and other conflicts raised by California's environmental uh uh uh review law uh called SQA California environmental quality act which requires them to go through this rigorous process of environmental review and then people in the in the region can basically threaten a lawsuit or wage a lawsuit and make you go through this process multiple times, go through discretionary review multiple times, and and there are other things on this. There's uh crazy union labor rules where it's like if you're a developer, you have to pay, you know, union labors this certain amount that raises costs tremendously. So, it's just this confluence of really misguided regulatory policies that work together to make it nearly impossible to build housing. So to give a picture, uh San Francisco has one of the worst housing shortages in the country. And so the California uh state government actually passed quotas for for every like major city in California saying you have to permit this many houses within 10 within 10 years. Uh I think we're like halfway through this now and San Francisco has done a fraction of what they're supposed to do. They just can't. They so hard to say yes to a house even if city planners want to. uh these neighborhood groups called nimbies, not in my backyard. They make it so difficult under this discretionary review process and environmental law, they make it so difficult to get anything built that even when planners say yes, they still face these roadblocks. So, it's it's just almost impossible to build anything there. >> Yeah. And I I think people need to uh have an idea of just how unusual this this whole discretionary permitting thing is. Uh I remember in my days at the division of housing in Colorado, right? You would go to these planning commission meetings and stuff and it was all pretty straightforward in terms you have to do XYZ in order to build. Now in many cases XYZ was a lot and very expensive, >> right? >> But if you just showed that we did XYZ, they just it was just a rubber stamp, right? Okay, great. They did the things. Go ahead and build. There wasn't any sort of debate. There wasn't like you having to lobby the members of the commission. And so now you might lobby them to not add additional requirements that they were constantly doing. But that applied to everybody. It wasn't this discretion down to do I like this particular project or not. Is this project near my house and I just don't like it because I just don't like the way it looks. That sort of thing. But you would hear about that like in some small mountain communities where it was like extremely wealthy people, that sort of thing. but normal suburbs that just wasn't an issue. But it seems like this is just a major problem now uh for the Bay Area in general and that just adds a whole other layer. Uh >> yeah, >> and not just the Bay Area to put discretionary permitting because this is one of my big bugaboos that I harp about a lot because it's just so, you know, I'm from Florida where it's so easy to build like this is just such a foreign concept to me. Uh but discretionary permitting the way it usually works because a about a third of California cities and and several other cities in the United States have discretionary permit for for a lot of things that you have to get. But the way that it it typically works is you have these really ridiculous zoning codes that are very difficult to be compliant on and it makes it where like building an apartment complex is unaffordable. So LA for instance, uh not in the Bay Area, but in California, um anything any apartment building with 10 or more units uh has is basically illegal uh for for all intents and purposes. And so you have to get a discretionary permit to bypass that zoning law, right? That's the way it usually works. And and that's what I call permissive discretionary permit. You get a ministerial permit, which means as long as you're code compliant, you automatically get a permit. uh you get a ministerial permit if you're able to abide by the the planning code. But if you can't do that to be affordable, you have to seek an exception. That's what I call a permissive discretionary permit. A restrictive discretionary permit is one where they just blanket say the answer is no to all permits until you come and beg us and and bribe us and whatever you have to do uh to uh to get a a a permit. And so that's what San Francisco does. uh even if you're code compliant, even if you're code compliant, you still need a discretionary permit. Uh and and so it's just a tremendous bottleneck to housing there and it leads to uh significant corruption. My first article with the Independent Institute, which was also published in the San Francisco Chronicle, was on this issue. There was a huge corruption scandal uh in San Francisco City Hall. It's still kind of ongoing uh based on people bribing uh regulators for permits in San Francisco because it's the only way to get things done. >> Well, and so I mean the the way you describe it, right, you cannot get this product below a certain price, right? The the supply of this product has been hugely constrained by government regulation. And this of course uh reminds us of certain other products, non-real estate products, I mean drugs, right? you you cannot obtain certain drugs below a certain price either because they're heavily regulated, i.e. prescriptions, something like that, or they're just straight up banned in many cases. And so, and this gets to your next point then. And so, what is the what is the response to that? The response is to then try and sell these things illegally in some way under the radar in a gray or black market. And so that that is something you you talk about a bit in your article, right? Is the the situation is so bad in terms of regulation, in terms of just outright prohibition of various types of housing >> that a black market is arising. So what does this black market look like? What what are some of these methods that have been tried uh to to bring housing onto the market but in a in an illegal or or invisible way? Well, some ways it it seemed like especially to us would seem like completely benign like uh the I open the article talking about example of some developers that are just facing hefty fines because they were you know permitted to build I I don't know the exact numbers but they were permitted to build 30 units and they built 50 instead right like oh my gosh in the city with a major housing shortage that's uh coming up short in its statemandated quota to build more housing they're fighting people for building more housing I mean it's ridiculous Right. So those are cases where I think most normal people would say this is absolutely absurd. But it also manifests in other less benign ways. Uh like this uh this one example where somebody was renting an apartment to a friend and the apartment was like a wooden box he built in his room in his living room of his apartment. You know it's like okay well now that's that's the kind of thing that I don't think you would see in a free market for housing, right? Like this is like a really weird substitute. The worst example of this uh didn't even make it into the article. It was in Oakland, not San Francisco, right across the bridge. Um, but it's the ghost ship warehouse was like renting out rooms illegally to people. And uh there was a fire in 2016 at this called ghost. You Google ghost ship warehouse fire. There's a whole Wikipedia page on it. Like 37 I think 37 people died in this fire, right? This was black market housing in Oakland, you know? So, it's like you're putting people in this awful position where there's such a scarcity of housing that to stay off the streets, they're having to rent these horrible, horrible rooms. These are not these are not free market products here, right? These are products that only exist and only have a market because of suppression of the free market, right? This is not the kind of thing we saw uh even under the the heyday of tenementss when everybody was, you know, up in arms over the poor condition of tenement apartments. like this is not the kind of thing you saw even then. Right. So these are these are the the worst I guess outcomes of of these black market manifestations. >> Well, you make a good point here in the article as to the issue of black markets. You note that black markets are not just free markets. Right now you and I we've hung around libertarian types for a long long time. And sometimes uh people will make this uh remark that they think is clever, which is that well I thank goodness there's black markets cuz that's just free markets peeking through uh the veil of government regulation. The problem is is that as you note in the article, they're not really free markets because in a truly free market there would be actual contracts that would be ar that would be subject to arbitration by a third party whether government or private. Uh and there there would be actual secure property rights based on contractual >> legally protected property rights. Right. Would agree on the best illustration of like why that's important is is drug the black market for drugs, right? Where they don't have secure property rights. So how do they protect their property? Well, they do it by forming violent gangs and shooting each other, you know, willy-nilly. I mean, that's that's how they secure property rights in the absence of legal protections, right? So, it's very very important that you have legally recognized and legally protected property rights. >> Yeah. You buy protection from some sort of gang, mafia, mob, whatever. And that's the way you do it because you can't get protection from the actual sanctioned regular government. And and that's the problem with black markets, right? Is you you don't there's not usually not a written contract of any kind, right? It's usually just some oral agreement. So, there's not a paper trail. And then how do you enforce your property rights or what's been agreed to? And I want to qualify especially for the anarchists listening to this is you don't actually need a sanctioned government for legally protected property rights. Uh property property law is a development of the common law. It doesn't depend on government. There are examples in history of property rights uh being enforced by private uh law. Uh there's libertarians that have written about this. Uh there's private adjudication firms that handle like international trade. Right. So, so we have a, you know, the government has a a monopoly on certain aspects of the law. We have private and public law in this in this country. Uh, but legal protection doesn't actually necess necessarily mean by a sanctioned, you know, coercive government. >> Well, you clearly don't need a state, right, in that organization. We now >> you need a governing entity, but you don't need a state. That's a good clarification. >> Which only came into being in about the 16th century. It's not like there weren't uh contracts and property agreements and and property rights before then because as you say right there can be this adjudication that that can occur. But but this doesn't occur in black markets because there there's no one no one is interested in adjudicating them in in a way that's not at least in in the gang >> because you have the the sanctioned government saying this is illegal. They actually prevent these these private mechanisms for legally protecting property rights from arising because the state claims a monopoly on the right to do that and then they they block any alternative. >> Yeah. The state would clearly prosecute any organization that tried to step in and act as a third party adjudicator in these sorts of cases. So it's just you don't have access to it. So it's impossible and you don't have real property rights then in those cases. Well, you do in the natural law sense, but not in any sort of administrative sense, uh, when when you're functioning in black markets. And so, that's a problem. So, yeah. So, I agree with you. We don't want to say black markets are fine because they're just private. >> And and one other point about like the the difference between black markets and free markets is there is the regulatory aspect, right? So, what a lot of libertarians say is they say, "Well, black markets are free markets because they don't have regulation, and that's a good thing, and that's where they're coming from." But they're only referring to a specific type of regulation. There's three types of regulations, right? One that I call like statutory or bureaucratic regulation is the one they have in mind. Black markets don't have that. We don't, you know, we don't support those kinds of regulations. But the other two types of regulations are very important to free markets. And that would be tort regulation which kind of goes back to the property rights. This is a private aspect of law where you know if somebody does something irresponsible uh with their you can sue them right like the warehouse fire you can sue right you can sue and that exerts a regulatory effect. The infamous McDonald's coffee case is actually a really good example of tort regulation working. This was not a frivolous lawsuit as it's often made out to be. This was when McDonald's was storing their coffee at these ridiculously high temperatures that weakened the integrity of the cups they served it in and would cause thirdderee burns a after like 5 seconds of contact with your skin. And so they had a ton of lawsuits over people spilling their coffee on them and getting severe burns and McDonald's was paying out these pitily sums. So this infamous case was I think the judge said 2% of coffee sales or two days worth of coffee sales or something like that came out to a couple million dollars for this woman. And the next day, the very next day, without uh the coercive arm of government stepping in with any kind of statutory regulation, McDonald's and every other fast food chain started storing their coffee at safer temperatures. That is the regulatory effect of the tort system. So, it's it's very useful and that is an aspect of private law. This is something that that would exist in, you know, an capistan. Uh then the third type is market regulation, right? Libertarians do talk about this. I I think tort regulation is the one that gets neglected. So, I like to harp on it a lot. But then market regulation is the competitive mechanisms of the market that creates incentives for people to improve the quality and lower the price. And in black markets, you don't have that either because black markets are a product of stifled competition. Right? Again, the drug trade has this. These drug cartels, they're not operating in a competitive free market. They're cartels for a reason, right? They're legally they're legally protected by the government's prohibition laws to operate as cartels rather than competitive entities. Right? So you don't have that like these regulatory mechanisms that are inherent to the free market. You don't have them in black market. So it's an important important distinction. >> You know, I can't let this pass without commenting on it. The whole McDonald's coffee thing, right? And of course, I used to be like everybody else where, oh, it's so ridiculous, right? >> They made fun of it on Seinfeld, right? >> Well, and people bring it up to this day. Usually an older demographic, but people will bring it up and they're like, "Oh, that's so dumb. Why can't What happened to personal responsibility?" And of course, I used to I used to just assume that, yeah, of course, it's a frivolous lawsuit. But then I was talking to a hardcore hoppian attorney, right? A guy who's just as free market as you can get. But he had actually read the case because he was an attorney and had to use the case in some case law research he was doing and he said yeah it wasn't a frivolous lawsuit at all sustained scarring hospital for weeks because of the spilled because they stored it at such a high temperature it would do severe burns instantly >> contract right I mean when you buy coffee from a restaurant it's kind of a it's it's it's implied that they're not going to give you coffee that's so thought that it will require skin grafts, right? I mean, it's >> so a violation of that would imply some sort of problem, some sort of tort problem as you say, right? And then we have a we have this third party arbitrator to do this. Again, it doesn't necessarily have to be a state. Could be just some other >> tor system is private. It it is a private system. It's not part of the state in this country. Yeah. >> Yeah. It wasn't a criminal prosecution. And and so yeah, so I just wanted to mention that, you know, and I always bring this up. I think I brought this up in a pollution article. You've mentioned this in one of your pollution articles as well. So, we've both made this point is the problem with statutory regulation in many cases is that it actually protects people from poll. You had an a pollution article where you said that, you know, uh carbon limits and things like that. They actually protect a company from being sued up until they reach that that regulated limit. So statutory regulation, one of the major problems with it is it provides protection against legitimate lawsuits from these companies because tort regulation is based on outcomes where a statuto bureaucratic regulation is like anything. It's about procedure and policy. Uh and so you know if you if you pollute up to the regulated limit, you're you're even if your pollutants cause cancer or whatever like that, you know, you're protected. You can't be sued, right? So statutory regulation undermines both market and tor regulations but black markets don't have any of them. >> Yes. Right. Yeah. We should note that there is an excellent magisterial I might even call it long article by Rothbart on the issue of how to use law and private law in the regulation of pollution and uh environmental issues and it's as you say right actually you would probably have more people more constrained more regulated through the tort law than are regulated in terms of pollution polluting a water supply polluting the air near your house near your farm those people would actually be more open to lawsuits and and having to to pay some sort of retribution um than they are under the current regulatory system. The problem you get is from alleged free market. Uh people I've seen even libertarians have written articles, well we can't go the Rothbard way because that's not efficient. It's clearly more efficient to have some level to have a higher level of pollution in the economy so you could have more GDP or whatever. Whereas Rothbus has taken a natural law position. He's like, "Look, you're polluting my water. I don't really care what you think is the the society efficient level of pollution in my backyard. And so Rothbart actually took a hard line on environmentalism, whereas these uh these less Rothbartian people who supposedly are more reasonable are actually saying, "Yeah, we want more pollution." >> Yeah. There's there's uh I I've thought this for a long time. There's a lot of libertarians that focus so much on the economic side of things. They lose that they lose sight of the legal aspect of libertarianism. And this is the legal aspect. We, you know, libertarians don't talk about the tort system enough or common law enough. Uh because you you need the legal side. There are certain things that economics can't answer in terms of like human conflict. Uh right and that's where a private legal system is so important and and torps are a part of that >> and you can't avail back to the topic. You can't avail yourself of any of this, right? If you're you're doing housing through a black market, right? There's just not the predictability, there's not the reliability. You can't just go hire an attorney and have this all worked out. Plus, you're probably then dealing with really shady people, too. Um, yeah, you might say, "Oh, slum lords are pretty shady." Well, they're not as shady as the guy who's like trying to, you know, do some sort of back alley deal with you in terms of putting you on a boat in the middle of a bay. So, that's just a very different uh situation. >> And, you know, there's other things like insurance that you don't get on the black markets, that go ship warehouse fire. How do you ensure against that when it's illegal, right? Like, so I mean, there's so many things that are missing in the black market because they they have to operate underground that that are important to to free markets >> and just basic renters's insurance, right? Say you are renting like in some sketchy neighborhood. At least then you don't lose everything you own with no compensation, >> right? >> Uh because you can't get renters's insurance. >> You're right. You can't do any of that on a black market. And because insurance companies for good reason, they just don't want to be involved, right? I mean, that's not even necessarily a government regulation. Uh, and you you know, I I would just note that this this this applies um also to an earlier article you had written on decriminalization of drugs where you had talked about how there's a c I've gotten emails from these people who are like, well, you should just decriminalize uh drugs. you shouldn't actually legalize them because then legalized drugs they have government regulation that goes along with them and that's worse than just sort of this gray market in drugs. But again, yeah, it opens it up when it's legal opens it up to some forms of uh government legislative regulation, the the bad type as you note. Uh but again, you're not able to avail yourself of see if I walk into a dispensary in Denver and I buy some sort of pot and it's bad and it caused me like a major health problem or something. I know who to go back to and who to sue. >> So in many ways obviously that's better in terms of the common law and stuff full legalization rather than this decriminalization thing. So that would seem to apply in this case as well. >> Abs. Absolutely. Like I've always said uh libertarians uh who argue that decriminalization is better than legalization. Decriminalization is a red herring because it still subjects the supply to the black market and that's not a good thing. Right? This is where like dilutants like fentanyl and xylazine these deadly deadly pollutants they they are a product of the black market. There's a reason why the only drugs that you can comfortably uh know do not have fentinel in them are the ones that you can buy legally. And it's not because of the the regulation against fentanyl. People might attribute it to that because that does exist obviously, but you know, imagine a world where that regulation didn't exist and then somebody was buying cigarettes and that was laced with fentanyl, they overdose and die. That's going to be a lawsuit. Uh so you know these companies, should that exist, there's going to be Marbor is going to come out and say uh here are fentanyl free cigarettes, right? They're going to make it a branding issue. That's exactly what people do. Just like caffeine-free soda. Some people don't want caffeine. It says caffeine-free right on the right on the the can of of like mug root beer to distinguish it from barks which has uh caffeine in it. You know, so it's like this there are solutions to this in the market that this is what we call market regulation. You don't have that in the black market because who do you sue? Nobody. You can't sue anybody. How like is there any brand consistency? Certainly not when your dealer can be arrested tomorrow like any any consistency that you might have if that black market chain of supply gets disrupted it can change right uh potency of of hard drugs is very unpredictable because of this where it's like a lot before fentanyl a lot of the over the main cause of overdose was people didn't know the potency of what they were getting so uh dosage was guesswork right and and uh you know one of your dealers gets arrested or something and the next guy doesn't cut the heroin as heavily, you know, so you get pure heroin and you don't know it and you overdose. So, black market is not where you want the drug supply. Uh, so it's a very good example of of exactly the problem with black markets and why decriminalization has been such a disaster where it's been tried. I'm all for legalization of drugs. I've been harping on that for years as longer than you've known me, right? But decriminalization is a is it might be a lesser evil for like incarceration and whatnot like prison rates but decriminalization is is absolutely a red herring. It's still subjects that to the black market and that's not what we want. Mark Thorne, by the way, has done some good work on how not only is potency unpredictable when there's a prohibition situation, but in many cases, prohibition actually encourages increased potency because then you're able to move more of your active ingredient around in in uh in smaller volume when it's more potent. So, there are other issues. >> This was his uh underappreciated dissertation work. And you know, I think Mark Thornton is the single most underappreciated scholar at the Mises Institute. He does phenomenal work that he doesn't give credit to. The iron law of prohibition is a concept that's uh become kind of widely circulated uh in the past decade. And this is a this is the concept of that he discovered in his dissertation work. He almost never gets credit for this. Mark Thornton uh is very very underappreciated on this this work. Well, and then of course, so when you've got all of these units then that uh are not subject to market uh regulation, right? Uh I'm just going to take whatever I can get. I don't have a written contract. If something happens to me, it's unclear who I can sue. It's unclear what my recourse is. It's just an extremely inefficient system. And I don't mean that kind of in the strictly economic sense, just in terms of something bad happens and you just don't know what to do next. there is no like set system like there would be in a in a true system where your property rights uh are protected and uh so that that would seem to be a problem. Uh >> I mean you you I can immediately recognize the inefficiency of the drug market with the fact that they have to produce like three times as many drugs as actually make it to the market because of all all that gets picked up in these drug busts that the government likes to advertise. Now maybe that's an inefficiency a lot of people would be comfortable with, but it is an inefficiency. you know, it's a significant one. >> Well, it just causes so much chaos then for owners. Uh, and you have a a great line here in the article. It says, "San Francisco's black market for housing is the direct outcome of the city's abandonment of private property rights. San Franciscans can still own property, to be clear, but the rights traditionally attached to it are wholly subject to the whims of the populace." Right? So, there's a there's a there's a surface sort of property ownership, right? But if you but if your dictate as to how you could use it, you don't really have property rights, right? >> Yeah. It's it's the it's fascist property rights. And I mean that very literally, right? Under fascism, uh fascism was very much inspired by socialism. Um Mises would call it Germanstyle socialism because it was still a command economy. But what happened under fascism, Nazi Germany, Italy, is you had titler property rights. You owned the title to your property, right? But what you could do with it was dictated by the state. That's why Mises called it uh socialism. Socialism of the German variety as distinction from the Russian variety where the state just seized the property because the what the state was doing was fundamentally the same thing. The only difference is the Bolshevixs put a party member in charge of the plant and the Germans as long as you weren't Jewish let you keep keep ownership of the plant. But you had to do what the state you had to produce the quantity that the state said. you had to produce what the state said. Your your prices were set by the state, right? It was still a command economy. So you you had private property, but you didn't have private property rights. And that's a very very important distinction in situations like this. So that's the case in San Francisco. You can own a house, you can own a piece of land, you can be a developer, you own apartment building, whatever it is. Uh but but what you're allowed to do with it is not dictated by you. It's dictated by the government. And in the case of San Francisco, often just by the general population because of this discretionary review process. >> Well, and I think then then the last question is is how do you start to move back in the right direction? Now, I think for a lot of our our listeners, this can be obvious, right? You need to regulate less. You need to allow more housing to be built. But just as baby steps, right? What should be the first things that San Francisco needs to do just to get out of this this horrible situation where it's just reached the point where yeah, we've got to sell illegal apartments now. We hey kid, you know, I know where I can get you an apartment sort of thing with no legal protections. It's unsafe and you have no recourse. Hey, but and we'll we'll deal it all with a handshake. I mean, this is not ideal at all. In fact, it's it's actually really bad. And so I mean just the first couple of things what should San Francisco do? Obviously real estate is one of the most regulated industries in the whole country. Uh I don't know how right I remember back during 2008 the financial >> it gets overlooked because it's local regulations which is not where we usually find them. So a lot of people like overlook how heavily regulated uh real estate is uh because it's it's the most locally regulated industry in the country >> and also at the state level right because we're >> state level too but but like zoning codes are localized right and so it's it's more than any other industry the uh disproportionate share of the regulatory burden is imposed by by local governments and that's uni it's very unique to real estate. So, what does San Francisco need to do really to just uh to start to rebuild the dyke in terms of producing actual real housing? >> Well, I don't think there are baby steps. Um it the problem is so significant that it needs significant reforms. Uh baby the problem with baby steps is and this is what I worry about with San Francisco is they'll pass, you know, they might do some kind of like deregulation that will improve things like say let's let's reduce parking requirements, right? This is a there was a whole book by Daniel Shupe uh or Donald Shupe um who died recently uh called the high cost of free parking that kind of popularized uh the idea of like parking requirements raising housing costs. So we're going to reduce parking requirements, but we're going to leave all the other like minimum lot sizes and things like this in place. Well, now the reduction in parking requirements, it doesn't do anything, right? Because you have these layers of regulations that you have that serve as the same barrier. And so removing one, it's like having eight fences around your yard. You you remove one, people still can't get in, right? So significant zoning deregulation, I think, is step one for most cities in the country that that have a housing shortage. Um, I would actually say abolish zoning. That's simple. Not politically easy, but it's simple. Just abolish zoning. You don't need it. Houston doesn't have it. Never has. And it's below the national average in housing costs as the fifth largest city in the country. It's astounding, right? So, zoning is completely unnecessary. Uh, it it it serves nothing but but harm. Um, so abolish zoning. Short of that, heavily deregulate zoning. You want to talk about specific zoning deregulations. You need uh end single family zoning. There are places that are doing this, but a lot of them are doing it poorly by attaching things like affordability requirements. like if you want to build uh a apartment complex, you have to devote some of your units to being below market rate houses or pay significant fees. And so this kind of undermines the abolition of single family zoning. Uh but but ending single family zoning without those strings attached is is probably the number one thing. End uh minimum lot sizes, minimum square footage requirements, any of these like minimum requirements. End building height restrictions. Um, this is a big one in places like San Francisco, Washington, Washington DC, you're not allowed to build anything taller than the Washington Monument, right? And so, apartments are ridiculously expensive there, even though they're allowed to build up. In San Francisco, there's only one section of the city that's allowed to build up. Everything else uh you know, there was a woman, famous woman, who uh in in a permit hearing uh brought a zucchini to oppose an apartment building near her house. She said, "This zucchini only exists because there's no shadow over my garden." Right? like this is the ridiculous stuff they do there, right? So, uh uh end, uh limitations on building heights, uh end uh abolish parking requirements, which is another thing that a lot of cities are starting to do uh is is uh reduce or eliminate parking requirements. So, these but you need the combination of them if you only do one and not the other. And and the reason why this is important is in the heyday of like downzoning in the 1980s that I talked about earlier is they they invented all these different ways to lower density because the state would step in sometimes and say, "No, you can't do that one. You can't just put like some of them wanted to just put a population cap. You can't do that." So they said, "Okay, well, we're going to put minimum lot requirements, right?" And so they all serve the so many of these regulations serve the exact same purpose. If you remove one and live the other in place, nothing is accomplished, right? And that's where the baby steps I think are are are impossible here. You need you need leaps. Um so significant comprehensive zoning deregulation is thing number one for most cities. Uh in San Francisco and in California in particular, you need to end the system of discretionary permits. A lot of places this would be solved by zoning deregulation, right? Those permissive discretionary permits that I mentioned earlier. you you deregulate and more more uh permits are subject to ministerial approval like the automatic approval. In Houston, the average time it takes to get a permit is about 10 days. In San Francisco, it's measured in years, like literal years just to get an a permit uh for a house or an apartment comp. Like I think it's like 3 years for an apartment complex. It's I mean it's absurd, right? Um my uh my colleague uh Lawrence Mc Mc Mckllin uh he he drafted a proposed amendment to the California Constitution a few years back. I talk about it a lot because I think it's a wonderful solution and it's it's what he calls a right to build amendment where uh this amendment would just say, "Hey, you own this property. You're allowed to you're allowed to build it." I mean, he writes it uh with a little more detail than that, but it's basically a right to build amendment that would impose uh ministerial approval process uh throughout the state. And I think this would be wonderful. It reminds me of um in the in the 19th century, in the jonian era, to charter a corporation, you had to beg your legislature for permission. You couldn't just go up to the the courthouse and fill out a piece of paper and be incorporated like you can today. Um you you had to go and pray to your legislature to to get a a corporate charter. And it was very similar to the discretionary permit process, right? And so what they did and uh then what the Jonians pushed for in the 1840s and 50s were a bunch of constitutional amendments or or new constitutions of the states that prohibited this. Kind of like Lawrence's uh right to build amendment. They said, "Hey, all everybody has equal access to the corporate form." Right? So it's very very analogous to the permitting issues here today where you just a a constitutional amendment that says, "Hey, you have a right to build. You have a right to a permit as long as you're code compliant." I think would be an important stuff. Those are the two biggest things uh that need to be done to fix the housing shortage. Other problems are still there. Building regulations are still ownorous, but zoning regulations I think are much worse. Uh and then uh like union labor requirements do add to the cost of housing. But the big things would be the zoning and the permitting process >> and to a lesser extent just a common issue in so many localities. I mean this is hardly just applicable up there of course. So yes, thank you for that. And we'll go ahead and let that be the last word here on Radio Rothbart. Of course, we'll have you back, Chris. We got plenty more to talk about in terms of nimism. You got some new publications coming out on that. And um so I think I think housing isn't going away as an issue even >> certainly not in California. >> No. And of course there are some areas where demand is going down. >> The LA wildfires like they've issued like 10 permits since these devastating wildfires. like they still they still can't build housing after the massive massive wildfire displaced like hundreds of thousands of people. I don't know the exact number uh from their homes. They've issued like 10 permits. I I mean like California can't get it together. So it's the it's the gift that keeps on giving for us right in trying to trash California. >> Yeah. We need to talk about right that whole uh burndown home never going to be rebuilt thing too uh going forward. >> Hawaii's dealing with that problem as well. is their wildfire. >> Oh, what a nightmare. Yes, I California is a great place to vacation. I love going to San Diego whenever I can. My father was from there. Uh, but you would be nuts if you're just a normal person to own property in California. It seems to me >> I would I you couldn't you couldn't pay me enough to move my family to California. $10 million a year. I'd say no. >> All right. Well, everyone out there, thank you for listening to this episode of Radio Rothbard. We'll be back next week with more and we'll see you next time. [Music]