We have become a nation in search of second-best alternatives. How so? Here’s a recent example from San Francisco. A beloved local taqueria, El Farolito, couldn’t open a new location because it now had enough locations to qualify as a chain, and chain restaurants are banned in parts of the city. The law ended up hurting a restaurant to which it probably wasn’t intended to apply, causing the story to hit the papers. But is it really any less ridiculous to ban residents from eating at a Taco Bell?
San Francisco may be the most extreme example, but living a regular life in a number of U.S. cities is increasingly difficult — like a party game where you have to catch a balloon while blindfolded with your hands tied behind your back. In some ways, we’ve been playing the same perverse game across the whole country for a while now.
Let’s step back a few years. The housing booms in Florida, Arizona and Nevada before 2007 were driven by the tens of thousands of families moving away from places such as Los Angeles and New York City because those cities lack adequate housing. In Phoenix, I know many of these transplants. They tell heartbreaking stories about literally coming to a “There’s no room at the inn” moment in Los Angeles, having had no choice but to set out in search of a city that could house them. But in 2007, even the boom in second-best housing came to an end.
The collapse of that housing bubble caused the collapse of yet another bubble in second-best alternatives — convoluted investments known as CDOs (collateralized debt obligations), synthetic CDOs and so forth. Remember the “crap” concocted by Wall Street and sold to unwitting investors? Those investors were mainly seeking safety — investments that weren’t supposed to default.
In 2006 and 2007, savers were becoming so afraid of investing in productive capital that might be risky that they were willing to put their cash into convoluted second-best products. One reason Federal Reserve officials slowed down economic growth and the housing boom was concern about a bubble in those products. The economy faltered, and those second-best alternatives to safer investments failed.
When those second-best bubbles were busted, it made homeownership seem dangerous. So the federal government put new protections in place to prevent lenders from originating mortgages to many families. As a result, homeownership is well below its long-term levels, and today many families that might otherwise choose to buy a home must rent. Today, many worry about the Wall Street investors who are buying up some of those rental homes. Should we now put a stop to this second-best alternative? What happens after that?
For decades now, Americans have been piling so desperately into second-best alternatives that we have been creating bubbles wherever we go. Instead of restoring the first-best alternatives, we repeatedly kick the legs out from under one option, then another and then another.
What we need is permission to make the best options work. So, yes, let Wall Street landlords have a go at it. Let young families aspiring to own a small piece of the world claim their stakes again. Let developers and builders create new housing where it makes sense. Let our legacy urban centers continue to evolve and thrive with dense, walkable, productive and fun residential zones. And, for goodness’ sake, let them eat a freaking taco — even one from (gasp) a chain.
This is how easy the task before us is. Giving our favorite restaurants permission to serve us – or getting out of the way of willing, knowledgeable, risk-averse mortgage lenders and prospective homebuyers who wish to do business with one another – isn’t exactly storming the beaches at Normandy. The downsides of failing to pick this type of low-hanging fruit are dismaying.
Will city officials eventually patrol the city, knocking inauthentic tacos out of starving residents’ mouths? That may sound like hyperbole. Yet, plans for new homes are routinely denied because they don’t meet a variety of aesthetic demands. Meanwhile, there are parks and bridges bulging with the tents of the unhoused across California, until public officials come by to knock them down. These common obstructions make it difficult to add dense infill housing appropriate for growing cities across the country. Increasingly, the difference between California and the rest of the country is one of scale, not of kind.
It is well past time to pull off the proverbial blindfolds and shackles and give Americans more freedom to build and own homes where they want, lend to whom they want and buy lunch from whom they want. Our mistake has been blaming an onslaught of “bubbles” on speculation and recklessness. Sometimes a bubble represents desperation created by a lack of alternatives. Restoring permission, rather than accumulating more prohibitions, is the way to slay these bubbles.