In my previous post, I discussed the fact that regulation was slowing the redevelopment of land in California. A recent paper by Leander Heldring, James A. Robinson, and Sebastian Vollmer (HRV) entitled “The Long-Run Impact of the Dissolution of the English Monasteries” examines a related issue. They find that in areas where religious monasteries were broken up and sold to entrepreneurs, economic growth accelerated. They argued that the new owners implemented productivity improving changes, such as more efficient farming techniques.
There’s a risk of becoming smug about how far we’ve advanced from the feudal era, but Matt Yglesias provides a wake-up call in a post that examines the implications of the HRV research for modern America. After discussing the obvious link to zoning regulations, Yglesias points to some other ways that land use is misallocated by government policies:
But it’s notable that not only has the United States re-invented all kinds of feudal-style local control and community control measures, we very specifically have policies in place designed to prevent this sort of transfer of ownership to the parties that get the most value out of it. After all, consider a scenario in which the value of a homeowner’s property rises a lot, which leads their property tax bill to rise. Such a person might be “forced” to sell, securing a large profit for herself, and putting the property in the hands of someone who thinks that both the high price and the high property tax bill are worth paying. Elected officials across the country largely regard this as a bad outcome and have put various policies in place to prevent it from happening. California’s Proposition 13 property tax rules are probably the most extreme and notorious version of this. But most jurisdictions have various rules designed to “protect” owner-occupants from rapid increases in property taxes while affording no such protection to investor-owners.
Our policies that encourage owner-occupied housing also lead to a misallocation of ownership:
Whenever someone does a version of the “homeownership is bad, actually” take, you end up with a discourse that blends two different questions:
Is it prudent for the typical middle-aged middle-class American person to become an owner-occupant of their home?
Is it prudent for the United States of America to have tons and tons of policies in place designed to specifically encourage and subsidize the former?
I think the answer to (1) is “clearly yes,” but that’s precisely because there is so much subsidization happening, not just in obvious ways like the mortgage interest tax deduction but in subtler ways like the “homestead deduction” I get on my property taxes and the fact that profits from the sale of owner-occupied housing are exempt from capital gains taxes.
Max Weber is famous for his theory of “The Protestant Ethic and the Spirit of Capitalism.” But the Heldring, Robinson and Vollmer paper provides an alternative mechanism to explain why economic growth might be linked to the rise of the Protestant religion, a link that has little to do with religious dogma.