Lee makes some great points in response to my first post. Here, in my second, I’d like to focus on the NIMBY problem. I take it from Lee’s paper that one of her goals is to adjust the homeowner’s risk portfolio in order to reduce socially undesirable behaviors.
I agree with Lee that homeowners are risk adverse, but I’m not convinced that outside investors will behave differently. The theory of H2.0 is that a more diversified investor will act more rationally than a local (less diversified) homeowner. But it was large lending (and government) institutions that created the standardized mortgages that fueled suburbanization; those institutions refused to lend in “transitioning” or mixed communities, or refused to lend in African-American neighborhoods altogether. Take block-busting, for example. Lee is betting that investors (unlike homeowners) will not cut and run when the first African-American family moves in next door, but that depends on believing that the homeowner’s reaction isn’t “rational.” I think it probably is: to the extent that even modest integration is an undesirable feature of neighborhoods for the majority of house buying whites, a rational investor will avoid mixed communities and find the entry of African-Americans a threat to neighborhood stability. Even an investor insulated from irrational prejudice will have to act consistently with the preferences of a large share of the house buying public.
Lee responds that we can regulate those investors, but I’m not sure it is going to be any easier to regulate the investors than the homeowners themselves. Indeed, I’d guess that the investors in H2.0 are going to be even more politically powerful than Fischel’s homevoters. What H2.0 could create is a large and powerful class of absentee owners who will have every incentive to intervene in local government to secure their fungible property interests. For Lee, fungibility and distance is a plus; I see both as a minus.
Of course, I also agree with Lee that homeowners often respond to off-site risks in an unproductive way. Zoning, for example, may be a positive development when used to control for negative externalities, but has serious regional consequences when it is used to restrict the housing supply. The trick is distinguishing good from bad NIMBYism. Lee is betting that a new form of land tenure will get us more good than bad. But I think the link between property forms and local government policies is more tenuous. The homeowner’s association—a relatively recent invention that now dominates the new housing market—was supposed to solve lots of problems (including controlling for off-site factors), but, as Lee herself has written, it has often come up short. Instead of tinkering with forms, we may want to rethink the American obsession with homeownership itself or simply regulate the bad forms of NIMBYism directly.