Incentivizing YIMBY: Greasing the Wheels to Improve Cities and Happiness

Jason M. Barr      March 26, 2018

First, answer this survey question:

On a scale of 0 to 10, please rate your satisfaction with life in general, where 0 means completely dissatisfied, 5 means neither satisfied nor dissatisfied, and 10 means completely satisfied.

What number did you say? If you are the “average” American, you would have answered “6.87,” which means somewhat satisfied overall. If you were the average Italian you would have said “6.00,” or if Russian you would have likely said “5.55.” If you live in one of the Nordic countries, your answer would be closer to “7.5” (placing you in the happiest countries on the planet).

The response to this survey question has become increasingly used as a measure of human well-being. Over time, and across many research studies, it has proved to be a strong indicator of the quality of people’s lives.

Happiness Studies

As the field of Happiness Studies has taken off, a deeper understanding of what makes us content has emerged. First, is people’s innate personalities. Some are born optimists while others pessimists. Studies that compare identical to fraternal twins find more variation in happiness ratings from the fraternal twins, demonstrating a substantial genetic component to life satisfaction. When big events occur, say winning a lottery or losing a loved one, the strong emotions from these are mostly fleeting; within a few months, people return to their baseline levels.

But, just as important is the social dimension to happiness. Despite our fascination with the lone hero (or antihero) traveling the countryside rescuing people from their misfortunes, the vast majority of us need to be around other humans.

Even free market capitalism, which pits all against all, depends on cooperation—that we will play by the same rules and neither steal, cheat, nor lie when competing against each other. That homo sapiens sapiens can achieve such vast quantities of wealth is a testament to its construction of what might be called a City of Trust—a vast complex of rules and social structures that allow us to live our lives with the belief that, on average, things will go as planned. More trusting societies are happier and happier people contribute more to the community.

The physical city—the places where we live, work, and play—is the great mediator between happiness, our social and economic needs, and trust.

The Policies of Immiseration

Ironically, the policies that we have demanded from our government may, in fact, be subsidizing our own immiseration. The promotion of single family, owner-occupied housing in the suburbs was originally an attempt to allow each family a tiny plot of utopia, separated from the chaos of the overcrowded city. Thus, modern living is characterized, for many people, by a dependence on the automobile and the hyper-separation of activities into many smaller segregated spheres—reside in one place, work in another, and play somewhere else.[1]

Take commuting. Economic theory says that long commutes will be tolerated because they allow for larger and cheaper housing in the suburbs. But, when shopping for a house, studies have shown, that people consistently make a mistake: they overestimate the satisfaction they will get from the larger house and undervalue the dissatisfaction they will get from commuting. When people realize their mistake, it is too late. They jointly sit alone in traffic—stuck in a Prisoner’s Dilemma of congestion.

Homeownership

Then there is the government promotion of homeownership. Owning a home is supposed to generate a bevy of socially desirable outcomes. In theory, homeowners are more likely to stay put and create more stable communities; and they are more likely maintain their housing and help preserve the physical quality of the neighborhood.

However, owning a home changes the way people feel about their house. No longer are they just concerned with shelter, but are also worried about preserving the value of their investment, which for many is their largest form of savings. Encouraging homeownership turns households into mini-investment corporations, who do not want to see any real or perceived threats to the value of their asset.

As a result, homeowners in residential neighborhoods have elected officials to represent their interests. The policies enacted come in the form of zoning regulations. As I have discussed elsewhere, in vast swaths of New York City, for example, it against the law for a homeowner to tear down her house and build an apartment building. Outside of the city, in the suburban hinterland, building restrictions are even more severe, often having rules that require quarter-acre minimum lot sizes.

In essence, the laws designed to protect the value of homes have locked-in a suburban, car-based status quo. Though homeowners sought this, they, perhaps unwittingly, have voted reduce their own happiness. (Not to mention the degree to which suburbanites disproportionately contribute to climate change.)

Happy Cities

A large body of research shows that the foot is the route to happiness. Living the bipedal life, it turns out, leads us to live as our evolution intended. We all know that walking is good for our health, but a life spent upright also enhances the quality of our social interactions. By slowing us down, walking forces us to stop whizzing past each other, and increases opportunities to get know our neighbors and generates more resources near our homes. Physical activity, it turns out, can also increase trust.

As discussed in the article, “Neighborhoods and Social Interaction,” by Scott Brown and Joanna Lombard, residents of mixed-use neighborhoods, for example, are more likely to walk than residents of residential-only neighborhoods. Research also suggests that young people in cities who live on blocks with more varied uses perform better in school. And just as importantly, increased walkability is associated with greater social connectedness.  (I will also have more to say in future posts about the role of tall buildings in promoting well-being; though the issue remains controversial).

There is no shortage of good policy ideas that can help promote healthier and happier cities. Enrico Moretti, for example, stresses the need to improve educational access. Those with more skills obtain better jobs and increase their economic and social mobility. Richard Florida advocates for investments in public transportation and the densification of the city via changes in zoning rules. Charles Montgomery argues for improved urban design: that we can structure our physical environment to promote better social interactions, such as “pedestrianizing” busy streets, “bucolicizing” green spaces, and infilling in single family residential neighborhoods.

Incentivizing YIMBY

Ultimately, however, these plans may be doomed to remain in the bucket of good ideas. The biggest obstacles to reform are the fear of change, and the ever-looming prospect that this change will land somewhere near or in our backyards. This means that no reform is possible until those who are harmed by change are compensated or are incentivized to embrace it. In short, cities and states should adopt policies that grease the wheels of reform. Once households reduce their fears, the bigger ticket items will be easier to implement.

Here are a few suggestions to get the conversation started.

Not in My Backyard (NIMBY) Insurance

One policy proposal, put forth by William Fischel of Dartmouth College, is what I would call NIMBY Insurance. Homeowners should have the ability to buy an insurance policy that pays out if the value of their house declines because of changes in the neighborhood (and not from drops in the macroeconomy), independent of the actions of the homeowner. If a neighborhood is rezoned for say apartment buildings, people will have confidence that their investments are safe (though chances are their land values will rise from densification as a result and insurance wouldn’t be necessary anyway).

Renters Savings Accounts

Renting is often poo-pooed because people think they are wasting their money on shelter without getting any savings out of it. Despite this belief, there are mixed findings on whether owning a home is a better use of money. The costs of the mortgage, property taxes, and upkeep means that buying is not always a great deal.

One way to incentivize the demand for renting is through the use of tax-free renters savings accounts. The “nudge” literature shows that if you create a default option to contribute, people will not opt out. The idea here is that renters contribute say 3% of the rent bill to a savings account (and is embedded directly in the rent bill). The money can be used to help pay for college tuition or for covering the rent in case of a temporary loss of job (thus also reducing homelessness).

Eviction Vouchers

Densifying neighborhoods means getting people to move out of lower-density homes or apartment buildings so developers can build more housing at those locations. If a property owner empties her rental building to tear it down and erect a denser structure, the evicted occupants should get a voucher or payment from the municipality to move to another location in the same city (say the equivalent of one month’s rent), thus offering some compensation to make the move less of a burden.

Density Payments

Finally, another idea is that if a homeowner increases the number of units on his lot, say through subdivision, infill, or building a new structure, he can qualify for a density payment from the city or state, which can help defray the cost.

In short, until cities and states come up with some ways to make transitioning less painful, we will remain mired in the ocean of great policies without a way to swim to the happy shore.

What are your ideas? Feel free to offer them in the comments section below.

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[1] A whole genre of Hollywood movie depicts the quiet desperation of the middle-aged suburbanite including “The Graduate,” “American Beauty,” “The Ice Storm,” and “Polyester.”