‘Freakonomics’ Author Steven Levitt Has a Promising Fix for Vancouver’s Housing Crisis
And it has nothing to do with building condos.
April 4, 2017
In 1898 the world’s urban planners converged in New York City for an urgent meeting to discuss a problem threatening the viability of cities across the globe. The issue? Horse manure—specifically the many millions of pounds of it produced every day in the world’s rapidly growing urban centres. Not only was the public health threat posed by manure so dire it warranted a 10-day summit on the issue, it was so intractable the meeting was cancelled after just three days, when no one could come up with a solution worthy of even discussing.
Just 20 years later, however, the problem that had threatened the very existence of cities was a non-issue—not because experts had managed to finagle a sophisticated solution, but because automobiles had come along and replaced horses as the vehicle of choice in the urban environment. Freakonomics author, podcaster and economist Steven Levitt offers this historical anecdote as a prime example of the limitations humans face when it comes to finding solutions for our most vexing problems: often the simplest answers are the most difficult to see. And not only that, we’re often not even asking the right questions.
Seeing as Vancouver has been banging its collective head against a metaphorical wall for years in our efforts to address our own manure-level problem—the rising cost of housing—we caught up with Levitt before his appearance at last week’s REDTalks event to see what this master of sideways-thinking had to say about our approach to the issue.
So in Vancouver, our problem isn’t horse manure, it’s housing. Most people agree the housing we have is too expensive and there’s not enough of the right type of supply. But not everyone agrees on how to fix this—do we crank out more condo towers? Give people bigger loans? Tax people with empty homes? As an outsider, what’s your perspective?
I would say when housing prices are high in a city, it’s almost always for a combination of two reasons: one is that there are restrictions on new housing being built, either geographic or political. And number two: that a city is doing great, people want to live here. Really, it’s supply and demand in the simplest terms. So among the set of problems a city can have that is a really good one to have. I’m not saying it’s an easy problem to solve, but in some ways I almost wonder whether you should call it a problem.
From the perspective of the people who have to pay to live close, they obviously would prefer it if it were cheaper, but it’s not like people don’t have options. They can go live in Winnipeg or Edmonton or Regina, but they don’t. And there’s a reason they don’t, and it’s because they want to live in Vancouver. So in that sense people are making a choice, the choice is that Vancouver at a high price is better than Winnipeg at a low price.
Knowing very little about the geography of Vancouver, my sense is that there are geographic restrictions on what can be done, but really those are mostly artificial. In a world in which developers could do anything, you can always go higher. But cities, rightly or wrongly, resist that. I’m not sure whether higher and higher population density is going to be the answer or not.
You’re absolutely right, developers can build anything, but one of the issues Vancouver faces is resistance to change. You recently did a number of experiments around how people react to change—most people will resist making big changes, like quitting a job or ending a relationship they don’t like. But most people are happier when they opt against the status quo. Knowing what you know about choices and making change, how do you incite and inspire an openness to change on a societal level?
Let me just say I’ve never personally had any success with that particular agenda of inciting or inspiring a broader level of [behavioural change]. I actually find that the solutions to big problems are rarely found in people and how they behave but rather in technology and how technology provides an escape.
In the case of high housing prices, perhaps the answer won’t be so different than the answer to the horse-manure problem, in that one of the big costs of living far out is commuting. It may just be that driverless vehicles so change the nature of commuting that the cost of being far out might just drop to an acceptable minimum.
Because if you re-imagine the car, not as being driven, but as a man cave or a woman cave in which someone else does the work and you equip it for an hour of internet-laden stereo sound with the refrigerator stocked, then maybe the hour commute becomes the best hour of the day, not the worst hour of the day. If there’s some force that could make living close to town less expensive, it would be that living far away from town is no longer seen as a cost.
I really do think that will happen, very quickly.
The way that you answered that question is really interesting because I feel like not just in Vancouver, but a lot of people facing a problem are banging their heads against a wall, trying to approach it head-on. How do you encourage people to look at something from a different angle? Are we even asking the right questions?
I think the less you’ve looked at a problem the easier it is to answer it. I think once you’ve devoted your career to solving a problem, once you’re emotionally invested in a problem, there are only a limited set of answers that are acceptable.
Global warming is a perfect example. Environmentalists have come to believe that the only acceptable solution to global warming is a massive reduction in carbon and other greenhouse gas emissions. That indeed would be a good way to reduce global warming. But I also feel like the environmental movement has been asking the wrong question. The question isn’t: how do we reduce greenhouse gases? The question is: how do we cool the planet?
Once you start thinking about how to cool the planet—just because we heated it up in one way doesn’t mean we have to cool it down the same way. And it turns out, from a scientific perspective, it’s a lot easier to cool the planet than it is to heat it up. There are a lot of options out there that scientists—maybe renegade scientists—are thinking about that could provide a technological solution to global warming.
It may just be that driverless vehicles so change the nature of commuting that the cost of being far out might just drop to an acceptable minimum.
But there’s been, I think, a very healthy resistance to even thinking about those solutions. I think environmentalists have decided there’s only one way, and it involves not just a reduction in greenhouse gases, but some suffering. We’ve done bad and now we need to suffer for the mistakes we’ve made in the past, which isn’t usually the best way to get to a solution. Usually suffering impedes solutions rather than enhances them.
And so you might think people would have been putting a lot of effort into scientific efforts to cool the planet: put sulfur dioxide into the stratosphere to create more cloud over the ocean to reflect the sunlight, there are various options done by real scientists that have been modelled and could very well, if nothing else, give us an insurance policy, buy us 20 or 30 years, which could make a very big difference. We know that with horse manure 20 years made all the difference. If we go to 20 years of keeping the earth cooler through artificial, technological means, we could get the kind of breakthrough that would allow for a real solution.
I also think in a world in which solutions seem difficult, if an easy answer comes around, people are often disbelieving of the fact that the easy answer could work.
That’s interesting because, to bring it back to Vancouver, we are a city obsessed. It seems like housing is all we talk about and often the discussion is framed in terms that people should be able to live in the city that they grew up in and have the same quality of life that their parents had. How do you get people to drop the morality piece?
I think the simple answer to your question is that the young people in Vancouver now probably wouldn’t have wanted to live in their parents’ Vancouver that much in the first place. So, the fact that the previous generations’ housing experienced isn’t being relived in this generation has less to do with this generation being poorer—I actually don’t think this generation is poorer—it’s just that Vancouver is a much better place to be and more people want to be there, so they have to pay more for the right or privilege to be part of that. But that’s not going to win any dinner-party arguments, and it definitely won’t win elections.
Speaking of elections, how should governments approach this then? Should they even try to reach consensus for issues like this?
So I don’t really give much into ‘should.’ ‘Should’ is above my pay grade. There’s nothing in my background that should make people listen to me about what city councillors should do.
What is true is that nobody wants a huge apartment building that doesn’t exist built next door to them now. No one wants the construction noise, no one wants the obstruction of the view, people who live in single family homes like them. I can understand why there’s resistance to change.
And in an ideal market in which there are no transaction costs, you figure out efficient solutions. If the highrise is worth more to the people who will live in it and the developers who develop it than it costs to the people around them, then the highrise will get built. The real world is one in which transaction costs are huge and it’s almost impossible to compensate people who are hurt by projects. That’s the reality.
That’s where I think resistance to change comes from. There are winners and losers when there is change and even if the benefits to the winners far outweigh the costs to the losers, it’s very difficult to compensate the losers. So if there’s a simple principle that explains why change is rare, why it’s hard to actually get this done, it’s that principle.
I guess before I said what governments should do is above my pay grade. But in an ideal world what you want the government to do is to approve changes in which the benefits to the winners are much greater than the losses to the losers, and to find creative ways to compensate the losers along the way. In principle, that’s probably what city governments are supposed to be good at, but I don’t think it’s very easy to do.
So maybe our best hope is driverless cars?