Thoughts on affordable housing XIII

This is the latest in the series on affordable housing. Affordable housing supply is arguably one of the top policy challenges facing cities across the world. 

This graphic by John Burn-Murdoch is a good illustration. 

Here’s more evidence.

Home prices have risen more than 50 percent since the pandemic. About a third of Americans households now spend more than 30 percent of their income on housing. In 2014, the median age of a first-time home buyer was 31. In 2025, it was 40 — the highest on record.

Burn-Murdoch also points to research that links some of the commonly observed GenZ behaviours (like not making an effort or splurging on luxuries) to the housing affordability problem. 

In a pioneering study published last week, economists at the University of Chicago and Northwestern University used detailed data on the card transactions, wealth and attitudes of Americans to demonstrate that reduced work effort, increased leisure spending and investment in risky financial assets (including crypto) are all disproportionately common among young adults who face little to no realistic prospect of being able to afford a house. By contrast, Seung Hyeong Lee and Younggeun Yoo’s research finds that those for whom home ownership is a more realistic possibility in the medium term, or who have already attained it, take fewer risks and strive harder at work. 

I have extended their analysis to the UK and find a similar picture. Young British renters who have little hope of cobbling together a deposit are much more likely to take financial risks — with online betting, for example — than their contemporaries who are on or within reach of the housing ladder… Lee and Yoo use time series data and local house prices to show that the link between unaffordable housing and economic behaviour appears to be causal. Recent upticks in financial risk-taking, leisure spending and reduction in work effort respond to changing economic incentives. As housing affordability deteriorates, those who come to believe they are locked out of home ownership resort to a mixture of high-risk bets and what US economic commentator Demetri Kofinas calls “financial nihilism” — why strive and save when it won’t be enough to make it anyway? — while their better-placed counterparts tighten their belts.

Fundamentally, as Ezra Klein points out with this graphic, the housing affordability problem is a housing supply problem. 

In 2025, America built fewer homes per 100,000 people than it did in 2005, 1995, 1985 or 1975.

Housing supply in the US has slipped into the negative territory since 2017. 

Governments in cities across the world have been exploring various approaches to address the housing affordability crisis. I have blogged about several of them in my earlier posts on the issue. 

The report by the Centre for American Progress, linked in the above article, offers a three-pronged plan: take down barriers that make it harder to build homes; build more affordable homes at a lower cost; and protect consumers and lower other housing costs. It seeks to address the problem of opposition to house-building in high-cost/rent areas by paying people living in such areas if their areas build more housing. Klein writes,

Places with a housing shortage — and that’s a lot of them — get a choice. Build the housing and the federal government will give all the renters in the city up to $1,000 off their rent — or don’t build the housing and lose access to certain federal grants. The Searchlight Institute, a new Democratic think tank, recently proposed a similar idea. In that version, cities and other places that hit ambitious housing targets would qualify for a federal rebate that would give every household — so both homeowners and renters — a check equal to the average increase in rent over the last year. In other words, build enough housing and the federal government will give the people who live near that housing money…

The other proposal is to lower housing construction cost

Between 1950 and 2020, productivity in the manufacturing sector — how much you could produce with the same number of workers — rose by more than 900 percent. That’s a big part of why everything from tables to televisions are cheaper today than they were decades ago. But over the same period, productivity in the construction sector has fallen… But you can manufacture housing — constructing homes in an off-site factory much the way we construct cars and then shipping them for final assembly. This is technology pioneered in the United States when George Romney, Mitt Romney’s father, served as secretary of housing and urban development during the Nixon administration. But the United States never figured out the rules nor the financing to make an industry out of it. Instead, it’s taken hold elsewhere. In Sweden, for example, more than 40 percent of new homes — and more than 80 percent of single-family homes — are fabricated off-site.

The Center for American Progress’s plan proposes a slew of projects to take this industry America invented and make it one where America is a leader. They want the government to seed a major research program to fund innovation in housing construction. They want to have the federal government leverage its purchasing power to become an initial buyer for modular housing — one idea here would be to have the Department of Defense upgrade its military base housing using modular construction. They want to modernize building codes to make modular easier — removing, for instance, an outdated federal requirement to attach a permanent steel chassis to all modular construction — and updating federal insurance and financing rules to make sure modular production qualifies.

A longstanding problem with urban planning in the US and the UK is the discretion allowed to local communities and planners in planning decisions. This has spawned NIBYism trends in the guise of conditions spanning environmental protection, preservation of historical areas, energy efficiency considerations, etc. Sample this illustration from the UK by Sam Dumitriu. 

A fourteen-flat development in Walthamstow, less than 10 minutes walk from the Victoria Line, required a 1,250 page planning application. Its developers produced more than 70 separate documents and still have waited over a year for a decision from the local authority. This isn’t just a Walthamstow problem either. One SME housebuilder recently revealed that Croydon required them to produce over forty separate validation documents to get planning permission. In the PM’s backyard, Camden, a major brownfield development was delayed because planners were not satisfied that the project was ‘exemplary’ in terms of ‘the circular economy and whole life carbon impacts’. In Cambridge, one of the most unaffordable parts of Britain, all new developments (10 units or more) must spend at least 1 per cent of their capital costs on public art.

The UK, under the Labour government, has been exploring various policy proposals to ease zoning regulations and promote densification to increase housing supply. The Chancellor Rachel Reeves has announced the Brownfield Passport, which would make “yes” the default answer for new denser housing on previously developed land. However, its success would depend on the details of implementation. Dumitriu writes that the Levelling Up and Regeneration Act (LURA) contains the power to create National Development Management Policies (NDMPs), which could declare basic standards for embedded carbon, flood protection, access to light, etc., to supersede any local planning policies. However, its effectiveness could be blunted by the non-binding nature of NDMPs. Another proposal by the Labour Government is the New Towns policy to develop new greenfield towns. 

California has been experiencing a serious housing affordability crisis, largely due to restrictive housing development norms like this.

Land is expensive, labor is expensive and NIMBYism — the not-in-my-backyard sentiment that exists everywhere — is particularly strong. The city’s zoning rules discourage projects that are tall and bulky and that might anger the owners of single-family houses nearby. Five stories is the tallest allowable height for a multifamily residential building — and those are permitted on only a few blocks of the city.

In early October, California took a major step to address this problem when the state legislature approved Senate Bill 79 (SB79) that overrides local zoning laws to promote transit-oriented development through higher-density housing. It allows developers to build up to nine storeys high within a half-mile of major public transit stops. The law would be phased in gradually, taking full effect by the start of 2030. 

In brief, the law would prevent local communities from blocking new mid-rise housing in well-connected locations under the cover of community review, environmental safeguards, etc. It expedites approvals by imposing strict timelines and penalties on the cities for non-compliance with its provisions. This is a good primer. 

California is emulating reforms that have been undertaken far away in New Zealand. The country has emerged as a pioneer in urban planning reform. In 2016, the city of Auckland upzoned three-quarters of its residential land through the Auckland Unitary Plan to allow dense development near transport by-right, which kept rents 30% lower than the counterfactual. The reform was rolled out nationwide, and New Zealand has seen a construction boom. The new Housing Minister, Chris Bishop, is taking the policy even further and removing anti-supply red tape.

Weekend reading links

1. Toronto's pedestrian tunnel system, The Path, that emerged in response to congestion in the main streets.

In the early twentieth century, Toronto’s businesses developed a novel response to this. They began to create pedestrian tunnels from their offices to the metro stations so that their employees could flow in smoothly, avoiding the congested streets (and, in winter, the cold). Shops quickly started to be added. After a few businesses had done this, a ‘network effect’ emerged whereby other businesses started to add their own tunnels to the system, benefiting from the existing tunnels while also making them more useful. It became routine for downtown developers to tie new office blocks into the network. Over many decades, a sort of ‘pedestrian metro’ emerged.

Known as the Path, the network today stretches for more than 30 kilometers, linking nearly all central metro and railway stations with many of the major office buildings. Although the Path forms a unified network, it is not in unified ownership: it is divided into some 35 chunks, each of which is still owned and managed separately by descendants of whichever business originally contributed it. Many branches of the Path thus terminate in the lobbies of office buildings, with the curious result that these grand spaces function as metro entrances for the general public. The municipal authorities play only a limited regulatory role.

The Path is unlike the gloomy and malodorous underpasses with which most of us are familiar. It is expensively decorated and feels like a high-end shopping mall, which in a way it is. It is extremely clean and closely policed by dozens of private security teams. Until recently, it was thronged with shoppers: this use suffered in the pandemic and has not wholly recovered, but the Path is still used for its original commuting purpose by hundreds of thousands of people every weekday.

2. Nvidia has a new rival for its GPU chips, Google's tensor processing units (TPUs), which it used to train its latest Gemini 3 LLM. 

Nvidia’s customers have a big incentive to explore cheaper alternatives. Bernstein, an investment-research firm, estimates that Nvidia’s GPUs account for over two-thirds of the cost of a typical AI server rack. Google’s TPUs cost between a half and a tenth as much as an equivalent Nvidia chip. Those savings matter, given the vast sums currently being poured into computing power for AI. Bloomberg Intelligence, another research group, expects Google’s capital expenditures to hit $95bn next year, with nearly three-quarters of that being used to train and run AI models.

But Nvidia's moat is unlikely to disappear.

For Nvidia’s other customers, however, switching to Google’s chips will not be straightforward. Nvidia’s edge lies partly in CUDA, the software platform that helps programmers make use of its GPUs. AI developers have become accustomed to it. And whereas the software surrounding TPUs has been created with Google’s own products in mind, including search, CUDA is intended to cater to a wide range of applications. What is more, reckons Jay Goldberg of Seaport Research Partners, an industry analyst, there may be a limit to Google’s willingness to sell its TPU; it could prefer instead to steer prospective customers towards its lucrative cloud-computing service. To stymie its AI competitors, Google may also be tempted to keep prices for its chips high.

3. AI adoption is stalling, so says a survey by statisticians at the US Census Bureau. It finds that the employement-weighted share of Americans using AI at work has fallen by a percentage point to 11%, and has fallen sharply at the largest businesses. 

The article has this description of the challenge facing the AI market.

From today until 2030 big tech firms will spend $5trn on infrastructure to supply AI services. To make those investments worthwhile, they will need on the order of $650bn a year in AI revenues, according to JPMorgan Chase, a bank, up from about $50bn a year today. People paying for AI in their personal lives will probably buy only a fraction of what is ultimately required. Businesses must do the rest... Jon Hartley of Stanford University and colleagues found that in September 37% of Americans used generative ai at work, down from 46% in June. A tracker by Alex Bick of the Federal Reserve Bank of St Louis and colleagues revealed that, in August 2024, 12.1% of working-age adults used generative AI every day at work. A year later 12.6% did. Ramp, a fintech firm, finds that in early 2025 AI use soared at American firms to 40%, before levelling off. The growth in adoption really does seem to be slowing...

According to a poll of executives by Deloitte, a consultancy, and the Centre for AI, Management and Organisation at Hong Kong University, 45% reported returns from AI initiatives that were below their expectations. Only 10% reported their expectations being exceeded. A study by McKinsey, another consultancy, argued that for most organisations, the use of aihas not yet significantly affected enterprise-wide profits... A paper by Yvonne Chen of ShanghaiTech University and colleagues refers to “genAI's mediocrity trap”. With the assistance of the tech, people can produce something “good enough”. This helps weaker workers. But the paper finds it can harm the productivity of better ones, who decide to work less hard.

4. India has caught up with China in education imports from the US (or students travelling to the US to study there). India's exports have doubled in just three years.

And India's share of US exports has now caught up with China. 

5. Striking statistic about private credit and insurance.

Close to 37 per cent of North American life insurance investments are allocated to private credit. But private credit encompasses a world of different types of lending — from private placements and commercial real estate lending to asset-based finance and fund finance — in which they have long-standing expertise.

Banks are also big lenders to private credit firms. 

6. Comparing AI investments with those in railways in the 19th century.

The railways, for example, were considered similarly transformative in the 19th century... As a percentage of investment in the United Kingdom, the world’s economic behemoth in the mid-Victorian period, domestic railways accounted for perhaps half. This was at the peak of the mania, in the 1840s. But even over the longer term, railway investment accounted for around a fifth of total investment over the four decades after George IV died in 1830. Around the turn of the century, railway bonds and shares accounted for between a quarter and a third of household financial portfolios in Britain. In the United States, during various railway-building booms (the 1840s, the 1870s), investment in the sector accounted for 40 per cent of total investment in the economy. At some points, it accounted for almost 10 per cent of gross domestic product (GDP)... AI investment may have accounted for all of US GDP growth in the first half of this year, but that still means only a couple of percentage points of GDP, as compared to the 6-10 per cent that was routinely achieved during railway booms.

7. Indian equity market facts

The MSCI India index has returned 2.5 per cent in dollar terms this year compared with 27.7 per cent for the MSCI Emerging Markets index, India’s weakest relative performance since 1993. Foreign investors have pulled more than $16bn out of India this year, the second-largest drawdown on record

Real interest rates have risen.

8. Indian economy update

9. Rising interest rates in Japan are bringing to an end decades of the yen carry trade which allowed western markets to benefit from Japan's savings. 

10. African electricity facts.

To get a sense of how little electricity people use in sub-Saharan Africa, imagine each person there turning on a single 50-watt light bulb. That alone would instantly double electricity consumption. Nigeria, with 240m people, generates less electricity than the American state of Wyoming, which has 0.6m inhabitants. Uganda, with 50m people, produces less than Latvia, which has a population of 1.9m. Around 600m Africans have no electricity at all.

11. A good summary of the Indigo fiasco that is now playing out in India.

The story begins with pilot associations filing petitions in the Delhi High Court around 2019-20, pushing for stricter rules regarding pilot fatigue. The High Court repeatedly questioned India’s Directorate General of Civil Aviation about updating its rules on pilot fatigue and, in response, the DGCA unleashed the Flight Duty Time Limitations (FDTL) rules... FDTL is a set of safety regulations that determines how long a pilot can work, how much rest they must get, and how many night flights they can operate... These rules were notified in January 2024 and were to come into full effect on November 1, 2025. IndiGo has now admitted that it did not plan adequately for these changes and thus faced pilot and crew shortages, which have led to this mayhem.

This is an important aspect about what happens when a dominant market player defaults in an infrastructure sector. 

In advanced economies, the repercussions would be through the markets and the courts. The markets are the first recourse – customers would punish the airline by choosing alternatives, and the company would have to go out of its way to win back market share. The problem, however, is the lack of alternatives in India, which was one of the main causes of such a scenario in the first place. IndiGo commands about 65 per cent of the market share, which translates to roughly two out of every three domestic flyers in India being on IndiGo on an average day, with the rest of the industry effectively competing for the remaining third. This enormous market power means that customers, despite themselves, might have to choose IndiGo again for their travel needs due to the lack of options.

The evolution of zoning regulations

As Edward Glaeser wrote in his classic Triumph of the City, urbanisation is arguably the greatest economic growth-creator in history. Zoning regulations and their trends have been central to the idea of urbanisation and the quality and nature of urban growth. 

In the latest edition of Works in Progress, Samuel Hughes has a fascinating account of the downzoning movement that gripped western cities, specifically their suburbs, since the turn of the 20th century. 

In 1890, most continental European cities allowed between five and ten storeys to be built anywhere. In the British Empire and the United States, the authorities generally imposed no height limits at all. Detailed fire safety rules had existed for centuries, but development control systems were otherwise highly permissive. Over the following half century, these liberties disappeared in nearly all Western countries. I call this process ‘the Great Downzoning’. The Great Downzoning is the main cause of the housing shortages that afflict the great cities of the West today, with baleful consequences for health, family formation, the environment, and economic growth… The Downzoning is one of the most profound and important events in modern economic history…

The Downzoning was extremely pervasive in existing suburbs, where it tended to raise property values by prohibiting kinds of development that were seen as undesirable… The general pattern is that the Great Downzoning was driven by interests more than by ideology. The Downzoning happened where it served the perceived interests of property owners, and failed to happen where it did not… in the great cities of the West, the housing shortage that the Downzoning has created may prove to be its un­doing. Anti-density rules now reduce property values in these places rather than increasing them, and there is growing evidence that property owners opt out of such rules when they have the opportunity to do so.

In European cities before the 19th century, the elites were concentrated in city centres, with suburbs being unplanned and impoverished. In fact, the city centres were fortified to physically cut them off from their suburbs. Low-density suburbs started emerging in some cities when developers began developing entire suburban neighbourhoods. Thanks to rising urbanisation, growth of capital markets, better roads, arrival of suburban railways, buses, and trams, improved policing, reform of feudal land tenures, and the demolition of city walls, suburban growth took off globally in the 19th century. The broad shape of development control regulations emerged in the form of privately enforced covenants.

Suburb developers tried to safeguard neighborhood character through imposing covenants. This episode forms a fascinating prequel to the Great Downzoning, so much so that we might think of it as a ‘First Downzoning’ or ‘Proto-Downzoning’. A covenant is a kind of legal agreement in which the homebuyer agrees to various restrictions on what they can do to their new property. Covenants generally forbade nearly all non-residential uses, as well as forbidding subdivision into bedsits or flats. They frequently imposed minimum sales prices, and in the United States, they often excluded sale or letting to non-white people. In all countries, they often included explicit restrictions on built density. Most covenants were intended to ‘run with the land’, binding not only the initial buyer but all subsequent ones too… They were used in all English-speaking countries, and similar mechanisms existed in France (servitudes in cahiers des charges), Germany (Grunddienstbarkeiten), the Low Countries (erfdienstbaarheden), and elsewhere (e.g. Italy, Spain, Scandinavia)… 

Covenants became more elaborate over time, and by the early twentieth century they sometimes included provisions on such matters as where laundry could be hung and what colours joinery could be painted in. Developers would not have imposed covenants if they had not expected them to increase the value of neighborhoods, so their pervasiveness reveals a widespread demand for development control among nineteenth-century people. But they were not very effective. One problem concerned whether courts would enforce them… Covenants fall under private law: breaking one is not a crime, and the state will not prosecute it. Enforcement thus requires a private lawsuit, which was and is expensive… To secure the development in perpetuity, covenants had to apply not only to the initial homebuyer, but to all future ones – people with whom the developer would never have any direct dealings, and who might indeed live long after the developer’s death… The upshot of all this was that covenants were usually a weak kind of development control, which disintegrated upon contact with serious demand for densification.

The adoption of zoning regulations by public authorities began in the final years of the 19th century in Germany and Austria-Hungary

The key innovation was ‘differential area zoning’, whereby different areas within a given jurisdiction were subjected to different building restrictions… After a couple of decades of experimentation, the 1891 Frankfurt zoning code caught the imagination of municipal governments across Central Europe. It was swiftly emulated. By 1914 every German city had a zoning code, and many had gone through multiple iterations, usually with progressively lower densities. In existing elite suburbs, these zoning codes tended to effectively duplicate the content of developers’ covenants, but because they had a stronger legal basis and were enforced by the state, they were far more effective… Virtually every wealthy suburb that existed in 1914 retains its suburban character today… 

The example of Germany and Austria was quickly followed abroad. The Netherlands introduced a kind of zoning system in 1901. Italian cities began to follow suit before the First World War. Japan began to introduce a zoning system nationally in 1919, albeit one that continued to permit fairly high densities. Poland introduced a national system in 1928. American and Canadian cities started introducing zoning systems in the 1910s, which became widespread in the course of the interwar period. Zoning provisions began to be introduced in interwar Australia and were consolidated in the 1940s. Britain and France followed relatively late… and robust national systems were not introduced in either country until the 1940s. In broad terms, the Great Downzoning was in place by the 1950s, though density restrictions continued to be tightened in the following decades in many countries.

The emergence of the downzoning movement benefited from a confluence of factors. It coincided with rapid urbanisation that had created squalor and unhygienic conditions in urban neighbourhoods. Public health systems failed to keep up with the urban growth. Among large elite groups, cities continued to be seen as parasites on the rural producing areas. Commoners and planners saw lowering density as the solution, with the latter proposing no more than 12 dwellings per acre. Governments stepped in to support urban diffusion (through lower density) by subsidising public transport, restricting mortgage subsidies to lower densities, creating common spaces and gardens, and so on. Amidst all these, as mentioned above, zoning regulations emerged to sanctify downzoning. 

Perhaps the most important reason for the success of the downzoning movement was that it did not have the legacy of zoned suburbs with their powerful, entrenched interests to overcome. Most importantly, the zoning regulations increased land values by formalising development control in those areas. In other words, the downzoning movement was the emergence of the zoning regulations themselves, starting with low-density. 

The only real downzoning requirement was on greenfield land, where the zoning regulations sought to suppress density. However, in these areas, the landowners and developers opposed and overcame restrictive zoning regulations. This was especially pronounced in Southern Europe - Spain, Portugal, Italy, and Greece. In all these places, densities started falling only in the late 20th century, on the back of market forces. In Germany and France, too, greenfield developments continued to have higher densities.

Hughes points to an important takeaway about the downzoning movement.

We are confronted, then, with a striking contrast: nearly total success in downzoning existing suburbs, and nearly total failure in downzoning greenfield development. This contrast casts doubt on the idea that the down­zoning was driven by the will of planning elites. Another context in which planners struggled to lower or even cap densities was in city centers. Many American city centers declined in the decades after the Second World War due to rising crime and traffic congestion, while densification was prevented in some European centers by architectural conservation laws. But in places where neither of these factors applied, densification of city centers continued apace, reaching some of the highest floorspace densities ever attained. Many Australian and Canadian cities are particularly clear examples of this, though there are also cases elsewhere. Again, this is puzzling for the ideas-driven theory of the Great Downzoning: in places which lacked an owner- occupier lobby for restrictions on densification, planning ideology seems to have been ineffective.

Since the middle of the century, as urbanisation has progressed, there has been a shift towards higher densities. Hughes points to the paradox of the favourable views on densification among officials co-existing with lower density views among the current landowners. 

From the 1960s onwards, the intellectual tide began to turn in favor of density, and by the 1990s, density was wildly fashionable again… Every planning school in Britain teaches its students the importance of density, walkability, and mixed use… There have been huge increases in the populationof virtually every British city centre since the 1990s, enabled and fostered by a range of public programmes… virtually none of this increase has taken place in private suburbs. Instead, it has been concentrated in former industrial or logistics sites, in city-centre commercial areas, or in social housing, which the authorities regularly demolish and rebuild at greater densities. Towns without much of this, like Oxford and Cambridge, have stable or even declining populations in their city centres…

All over the West, urban density is valued by planners and officials. Governments pursue it, and have had some success in enabling it in industrial and commercial areas and through the redevelopment of public housing. In the United States, densification is the central theme of a vast YIMBY movement. But progress on densifying owner-occupier suburbs has been extremely limited, and the vast suburbs of the nineteenth and twentieth centuries remain almost untouched. The unified opinion of the planning and policy elites has proved ineffective in the face of homeowner opposition. If the idealist theory were the whole truth, and the Downzoning was purely the creation of planners, this would be extremely strange.

The article points to the general preference for lower densities among households.

When people buy a home, they care not only about the home itself, but about the neighborhood in which it stands. This was why nineteenth-century developers started building whole villa colonies and streetcar suburbs rather than just individual houses… All else being equal, many people prefer neighborhoods built at low densities. Some of the perceived advantages of low density will apply virtually anywhere, like quieter nights, greener streets, more and larger private gardens, and greater scope for social exclusivity. Other attractions are more specific to certain contexts. Where urban pollution is bad, people seek suburbs for cleaner air. Where crime is high, suburbs are often seen as a way of securing greater safety. In eras with high levels of racism and increasing racial diversity, people moved to suburbs to secure racial homogeneity. Restrictions on densification were a way of preserving these ‘neighborhood goods’ in perpetuity. The prevalence of covenanting constitutes extremely strong evidence that suburban people wanted this. Covenants were imposed by developers, whose only interest was in maximizing sales value. They judged that the average homebuyer valued the neighborhood goods that covenants safeguarded more than they valued the development rights that covenants removed. 

But such a preference must also be seen against the increased value extraction from properties due to upzoning.

For example, residents of the London neighborhood South Tottenham recently persuaded their local councils to let them double the height of their houses. All properties in the neighborhood enjoyed an immediate boost in value once the council agreed. In South Korea, some neighborhoods are allowed to vote for much larger increases in development rights. This generates abundant value uplift, as a result of which residents of such neighborhoods nearly always vote in favor. In Israel, apartment dwellers can vote to upzone their building: this has proved so popular that half of the country’s new housing supply is now generated this way.

Hughes makes the point that while initially, downzoning was attractive since “the neighbourhood goods it secured were more valuable than the floorspace it precluded”, but as cities developed and property prices rose, “the development rights lost through density controls to retain neighbourhood values became steadily more valuable”. 

Making the principled case for density is useful, but unlikely to be sufficient: principled argument did not make the Downzoning, and it probably won’t unmake it either. Instead, campaigners should consider ways in which the changing structure of homeowners’ interests can be mobilized in the cause of reform. The examples of South Tottenham, Seoul, and Tel Aviv suggest that homeowners may be vigorous in pursuit of upzoning when they realize how much they stand to benefit from it. There is no reason why this could not be replicated elsewhere.

This utilitarian and instrumental view of zoning regulations contrasts with the argument that they emerge from ideological principles. 

In this regard, the trajectory of the downzoning trend may be typical of the many large systems that we see in our lives. 

These systems have unregulated (or less regulated) and disorderly beginnings. With time, people mobilise coalitions to formulate norms and then rules to bring order to the system. This creates value and attracts more interest and people to the system. Most often, the lead in this process is taken by an emerging class of beneficiaries from the dynamics triggered by the unregulated system. In due course, these winners will find ways to entrench themselves. They will seek to perpetuate and tighten the rules, in the process further benefiting themselves (and excluding others). 

This equilibrium gets upended only when either the benefits of switching to another set of rules become more attractive for the winners, or the coalition of those adversely impacted by the rules gains the upper hand over the incumbent winners, or the social costs become egregiously prohibitive. If either (or a combination) happens, it triggers a competing dynamic that creates a new set of rules. These rules invariably promote the interests of the competing group and create a new set of winners. 

In the case of zoning, regulation (and downzoning) allows the landowners to create neighbourhood goods that increase the value of their properties, and then appropriate all the value by opposing any proposal that would expand supply. The localised nature of decision-making on zoning regulations promoted the NIMBY movement. This persists till the property prices rise so high that building more on the same land becomes financially more attractive. 

In some ways, this is the dynamic of any kind of regulation, from occupational to industrial licensing, restrictions on capital to trade, protection of the environment to labour, financial markets to infrastructure sectors, and so on. They start with good intentions to address a felt need, only to gradually become captive to vested interests, who are generally the early beneficiaries of the regulations. 

This trajectory of evolution is also true of new technologies, which tend to flourish in conditions of light-touch regulation. As the technology grows, and especially with those which have network effects, the early movers develop large moats and resist any regulation that dilutes their head start. 

All these are classic market failures, and demand public policy action. In the case of zoning regulations, it becomes essential for central (or provincial) governments to step in and mandate regulations that seek to correct the failures and expand supply. The recently passed California SB 79 Act, which overrides restrictive local zoning limits to set new zoning limits that aim to expand housing supply, is a good example.

In the cities of developing countries like India, high-density urban development is associated with slums, poor quality of infrastructure, and generally stressed carrying capacity of the locality. This experience, reinforced by the prevailing trends and theories from the West about low-density suburban growth, has led planners in these countries to deeply internalise the belief that upzoning is detrimental. They, and their influence on the bureaucrats and politicians, are perhaps the biggest obstacles to upzoning in these countries.

The strength of the argument that affordable housing is constrained by restrictive zoning regulations is diffused by other demands for lower taxes and fees on land and construction, lower cost of capital for real estate, release of vacant government lands, and so on. Besides, the sprawl has come to be accepted as a norm. All these come in the way of radical reforms to zoning regulations that appear all too logical. 

Weekend reading links

1. Case study of US toy maker, Learning Resources, on the challenge of diversifying away from China.

While you can move your manufacturing out of China, it’s much harder to move China out of your manufacturing.

Some snippets highlighting the point above. 

The toymaker offers about 2,000 products; a few years ago more than 80% of them were produced in China by companies that tapped into the country’s countless vendors of plastic resins, paint pigments, computer boards and other materials... China has about 10,000 toy manufacturers, versus roughly 100 factories in Vietnam skilled enough to produce for export... This lack of scale means less competition to bring down prices, crucial for toys, where margins typically stand in the single digits. Learning Resources is moving batches of about two dozen products at a time to Vietnam, a time-consuming and costly process. Each toy requires as many as a half-dozen heavy steel molds, which are mostly made in China. Ruffman estimates it will cost about $5,000 to move each mold to Vietnam—adding millions of dollars in expenses that contribute nothing to the bottom line... Vietnam’s output per employee is as much as 40% lower. That’s because Chinese factories have invested heavily in automation and can rely on an experienced workforce... China’s combination of expertise and infrastructure “doesn’t exist anywhere else”.

2. Avocado farming comes to India. It can generate annual income of about Rs 4 lakh per acre, net of all expenses. 

Currently, demand within India is met largely by imports which are doubling every year. In FY24, India imported 5,040 tonnes which climbed to nearly 12,000 tonnes in FY25. This year, the imports are likely to cross 20,000 tonnes (the imports during the first quarter of FY26 was nearly 7,400 tonnes). Come to think of it, a few years back, in FY21, imports were a mere 234 tonnes... Despite the growing popularity of avocados among farmers, it’s only the well-off who are getting into it. The reason is simple: for orchards to yield a remunerative return, it takes 4-5 years from planting. The costs range from ₹4-5 lakh per acre (apart from the land cost). Just one sapling of avocado can cost anywhere between ₹800 to ₹2,500 (about 150 saplings can be planted in an acre) depending on the variety and rootstock... As per a June 2025 estimate from Rabobank, the global avocado market is around $20.5 billion. The report estimated that global avocado exports are likely to touch 3 million tonnes by 2026-27, from one million tonnes in 2012-13. Today, India imports about 90% of the avocados it consumes from Tanzania (as the produce is duty free), with smaller volumes coming from Australia and Kenya, among others.

3. For all the talk of China competing with the US on AI, the latter dominates VC funding in the field.

And AI computing power too is concentrated in the US

4. FT has a graphic which shows that Germany, the centre of capital goods manufacturing, has now become a net capital goods importer from China!

For about two decades up to the pandemic, Chinese demand for German engineering goods and cars was seemingly insatiable, fuelling the Merkel-era growth in corporate profits, employment and economic activity. Since the pandemic, however, China is “increasingly beating Germany at its own game”, says Spyros Andreopoulos, founder of Frankfurt-based consulting firm Thin Ice Macroeconomics. On average, Chinese capital goods are 30 per cent cheaper than those of Europeans. Crucially, manufacturers in the Asian superpower have also closed the quality gap. Since the start of 2025, Germany is now running a trade deficit in capital goods with China over a rolling 12-month period. That is a first since records began in 2008. Chinese machinery exports to Europe roughly doubled to around €40bn in over six years and may reach €50bn this year, according to industry association VDMA. While German premium car brands like Audi, Porsche and Mercedes-Benz were the first to feel the pain, capital goods makers have started to get similarly pounded... 

Goods coming out of China are no longer cheaply made, lower-quality knock-offs, if they ever were... When it comes to speed, they have surpassed Western rivals by a mile, needing half the time to turn a new idea into a finished product. Shorter product cycles mean quicker learning... Philipp Bayat, chair of Munich-based compressor maker Bauer Kompressoren Group, gives a striking example. He needs a new wire-processing machine for one of Bauer’s European plants. A quote from a Swiss-based European company stands at €130,000, compared with one from a firm based in China’s Zhejiang province for less than €28,000.

4. Sander Tordoir makes the case for Buy European policy to counter the rising imports of Chinese automobiles that threaten to destroy Europe's automotive industry.

Europe’s car industry employs more than 10 million people and accounts for a larger share of private R&D spending than any other industry... Thanks to widespread subsidisation and genuine innovation, China’s global car exports are exploding, and European exports are being squeezed out of global export markets, starting with China. EU car exports to the United States (US) almost doubled between 2019 and 2024, but President Trump’s 15 per cent tariffs and his rollback of EV subsidies will deal another blow. EU domestic demand, meanwhile, is weak... Rather than tampering with regulations, EU policy-makers should ensure that demand from Europe’s huge single market, with 450 million consumers and a vast corporate sector, spurs European production. That primarily means supporting demand through consumer subsidies, with a buy-European clause co-ordinated across member-states... 

To align demand-support schemes across the EU, the Union should Europeanise the French eco-bonus. The French model, with its carbon-based scoring system, is the most practical template to adopt across member-states. It effectively steers demand toward European-made EVs and filters out Chinese production, because it limits subsidy to EV models produced in low-emission supply chains... To support its car sector, Germany has just committed to reintroducing EV subsidies. Equipping them with the eco-bonus would align Germany with France and support a buy-European policy. Italy and Spain, which are reviewing their subsidies next year, could then follow suit... 

Household EV purchases backed by subsidies would cover only 40 per cent of the total European car market. Over 60 per cent of EU new registrations are company cars which already benefit from sizeable subsidies. Support schemes for corporate EVs should also be conditional on European content requirements. Ensuring that buy-European subsidies apply to both markets would also allow Germany to secure demand for premium models, common in corporate car fleets, while France, Spain and Italy gain scale in the smaller cars which are more common in the household market... because buy-European clauses would be open to producers across the EU, the policy would not require policy-makers to pick ‘winners’. German tax incentives would also help French producers, and vice versa. A harmonised EU framework could avoid subsidy fragmentation, foster competition in the European market, and level the playing field with China, which excludes foreign vehicles from its own subsidy schemes.

5. Top Chinese companies are training their AI models overseas to skirt the US ban on the sale of Nvidia chips.

Alibaba and ByteDance are among the tech groups training their latest large language models in data centres across south-east Asia... there had been a steady increase in training in offshore locations after the Trump administration moved in April to restrict sales of the H20, Nvidia’s China-only semiconductors... Over the past year, Alibaba’s Qwen and ByteDance’s Doubao models have become among the top-performing LLMs worldwide. Qwen has also become widely adopted outside China by developers as it is a freely available “open” model.Data centre clusters have boomed in Singapore and Malaysia, fuelled by Chinese demand. Many of these data centres are equipped with high-end Nvidia products, similar to those used by US Big Tech groups to train LLMs. According to those familiar with the practice, Chinese companies typically sign a lease agreement to use overseas data centres owned and operated by non-Chinese entities. This is compliant with US export controls as the Biden-era “diffusion rule” designed to close this loophole was scrapped by US President Donald Trump earlier this year.

6. This is important for China to remember as tensions between it and Japan rise. 

“The more pressure China exerts on Japan, the more Japan feels compelled to prepare, recognizing the growing danger — Prime Minister Takaichi’s approval ratings are rising, and the Japanese people’s sense of crisis is also increasing,” said Ichiro Korogi, a professor of international studies at Kanda University of International Studies.

7. Is there anything China wants to import from rest of the world?

There is nothing that China wants to import, nothing it does not believe it can make better and cheaper, nothing for which it wants to rely on foreigners a single day longer than it has to. For now, to be sure, China is still a customer for semiconductors, software, commercial aircraft and the most sophisticated kinds of production machinery. But it is a customer like a resident doctor is a student. China is developing all of these goods. Soon it will make them, and export them, itself. “Well, how can you blame us,” the conversation usually continued, after agreeing on China’s desire for self-sufficiency, “when you see how the US uses export controls as a weapon to contain us and keep us down? You need to understand the deep sense of insecurity that China feels.” That is reasonable enough and blame does not come into it. But it leads to the following point, which I put to my interlocutors and put to you now: if China does not want to buy anything from us in trade, then how can we trade with China?

In the circumstances, what can China do?

Beijing could take action to overcome deflation in its own economy, to remove structural barriers to domestic consumption, to let its exchange rate appreciate and to halt the billions in subsidies and loans it directs towards industry. That would be good for the Chinese people, too, whose living standards are sacrificed to make the country more competitive.

8. Europe's CBAM makes India's steel less competitive compared to China's.

Over one-third of India’s 6.4mn metric tonnes of annual steel exports go to Europe, which will implement its divisive carbon border adjustment mechanism (CBAM) on January 1, a tax on polluting overseas producers aimed at protecting EU industry from being undercut by cheaper but dirtier imports. India’s European exports are expected to be disproportionately affected by the new rules, with Chinese steel imports subjected to an average tariff of 7.75 per cent compared with India’s 16 per cent levy, according to the Net Zero Industrial Policy Lab at Johns Hopkins University... India is “less efficient” compared with other major steel-producing nations, with an emissions intensity of 2.5 tonnes of CO₂ per tonne of crude steel compared with the global average of 1.9 tonnes.

9. The rise of psychiatric disorders in the US is disturbing. 

A diagnosis of attention deficit hyperactivity disorder is practically a rite of passage in American boyhood, with nearly one in four 17-year-old boys bearing the diagnosis. The numbers have only gone up, and vertiginously: One million more children were diagnosed with A.D.H.D. in 2022 than in 2016. The numbers on autism are so shocking that they are worth repeating. In the early 1980s, one in 2,500 children had an autism diagnosis. That figure is now one in 31. Nearly 32 percent of adolescents have been diagnosed at some point with anxiety; the median age of “onset” is 6 years old. More than one in 10 adolescents have experienced a major depressive disorder, according to some estimates.

10. Alan Beattie calls peak Trump tariffs, even as affordability and cost of living become a rising issue in US politics. 

The meeting in October with Chinese President Xi Jinping, in which Trump backed down after threatening a massive escalation of tariffs, now looks a lot like an inflection point. Last week, having remained composed in the face of Trumpian invective against the criminal prosecution of his coup-fomenting predecessor, Brazil’s President Luiz Inácio Lula da Silva, was rewarded with massive cuts in US tariffs on food. Fellow Central and South American countries Argentina, Ecuador, Guatemala and El Salvador got similar relief, and so probably will the EU. Canada has yet to be clobbered with the additional 10 per cent tariffs Trump threatened for the heinous crime of accurately quoting Ronald Reagan in a TV ad. Reports suggest he will soften or shelve forthcoming tariffs on semiconductors.

Gillian Tett writes

Four months ago, US President Donald Trump announced 40 per cent additional tariffs on Brazilian imports (creating 50 per cent total levies), because he was furious about the country’s legal investigation into Jair Bolsonaro, its former president, and its clampdown on US Big Tech. But President Luiz Inácio Lula da Silva defiantly hit back at the bullying — boosting his domestic popularity — and defended the courts. A Brazilian judge has now sent Bolsonaro to jail. And those tariffs? Last week, Trump declared that “certain agricultural imports from Brazil should no longer be subject to the additional [40 per cent surcharge]”. In plain English: Lula won.

India remains the only country to have not benefited from the Trump retreat.

Is populism the transition to a return to the traditional left-right political system?

This blog has repeatedly argued (see this, this, this, this, and this) on the need for the progressive and centrist parties to break free from the grip of the educated and the business interests.

Reinforcing this point is Thomas Piketty in an interview by Joel Suss. Piketty identifies three big ideologies since the industrial revolution - nationalism, liberalism, and socialism. 

The nationalist side is what you see with all the anti-migrant movements in France, in Britain, et cetera. Trump is certainly a nationalist, both on the anti-migrant, ethnocentric dimensions, but also in his sort of extractivist discourse with respect to the rest of the world. The pure liberal, pro-business camp has been weakened considerably by rising inequality and stagnating middle class income. These days, I think you cannot be re-elected anymore with a basic pro-business agenda. Look at the Conservative party in Britain — the electoral base that’s going to be happy with this is so narrow that you will never be re-elected. This is why the right-wing party [Reform UK] and even sometimes a billionaire like Elon Musk are turning to the sort of nationalist, anti-migrant, anti-left discourse because they feel this is the only way — to put it in a very cynical manner — to try to get the popular vote. 

Then you have the democratic socialist side, you can call it the left-wing or more egalitarian side. This political family has been incredibly successful historically. It has built the welfare state and brought prosperity and equality to an extent that nobody could have imagined a hundred years ago. But they have sort of stopped thinking about the future. They have become in some cases just a force of conservation, of defending the welfare state, defending the social system. 

He makes an important point about the agenda of wealth redistribution. 

It’s just a practical, rational question of how you share the wealth, how you share the tax burden, how to share power. And I think, historically, the building of the welfare state system, progressive taxation — this is not a populist achievement, this has been a rational, socialist, democratic achievement, which now nobody is questioning… Every time you have a party that is trying to push for equality and redistribution you also always have some elite who try to portray this party as populist.

And why the discontent from widening inequality and stagnating living standards has been captured by the right-wing populists, despite their coalition with the corporate interests.

I think the left has not been very good at redefining its agenda for several reasons. The main reason is that the left has been a victim of its own success. The welfare state has become a reality — nobody really wants to return to a situation before [the] first world war where total tax revenue and public spending will be less than 10 per cent of GDP. Now the only question is: do we stabilise it at 40 or 50 per cent in some European countries or do we keep going up… The other reason is educational expansion. Because it was successful, it has built a new class of highly educated people voting for the left… But if you grew up in a small city or small village, it’s just more difficult to access universities than if you grow up in a large conurbation, for a given parental income, given social characteristics. For all sorts of reasons… the allegiance to the left in this process of educational expansion has turned around completely — it used to be the case that the less educated would vote for the left… so the left has to redefine equality in access to education which makes people with lower social class origins, and particularly people in the smaller cities, feel more respected. 

It’s not just about education; it’s also access to hospitals, access to public transportation. It’s easy to criticise people who use their car when you have the metro in London. The entire movement of educational expansion, health expansion and also ecological concern has created a new educational divide and territorial divide. This is where the left has been in difficulties. One thing that we observe today throughout western democracies is that you have this disconnection between the income cleavage and the education cleavage. For a given income, when you move up in education you actually get more left in terms of vote. And for a given education, when you go up in income you turn to the right. The two dimensions used to go together but they don’t anymore. The other big transformation is this territorial gap [inequality between regions] which has returned to levels we have not seen since the early 20th century.

He has some advice for the socialist side, 

I think they need to rethink, to have a new agenda for the future — more internationalist and also more egalitarian. This will have to come with a very strong compression of inequality and power and wealth distribution. I’m not saying it’s going to be easy, but the alternative is the nationalist side right now, because the pro-business, liberal side has been weakened by rising inequality and stagnating median income… The UK Labour Party has to move left in terms of economic and fiscal policies because the UK has so many parties on the right already. You cannot compete with the Conservative and Reform parties on the right.

Piketty has a striking factoid about inequality in France. 

In France, the top 500 wealth holders used to collectively own €200bn in 2010. Now they collectively own €1,200bn — it’s been multiplied almost by six. Of course, GDP per capita, average wage or even average wealth has not been multiplied by six over this period.

Piketty’s central point is that the mass base of the pro-business centre, the liberals, has shrunk so much as to make them unelectable on their own. They must ally with the nationalists or socialists to be able to fashion an electable coalition. 

This is a return to the old left-right paradigm. The centrist liberal agenda emerged as a synthesis of the duelling thesis of the right and anti-thesis of the left. The changes in the economic structure, nature of work, trends like globalisation, etc., have now weakened the centre and created the space for the return of the old right and left. While the right has mobilised its coalition to be back as an electoral force, the left is struggling to mobilise and respond electorally. The thesis in the form of the nationalist right has emerged and is awaiting the return of the anti-thesis in the form of the socialist left. 

Piketty makes an important point about how the success of the thesis will create the seeds for hastening the emergence of the anti-thesis.

Let’s see when the nationalists are in power how they are going to cut spending, because in practice, even if you cut everything you’re giving to migrants, that’s not that much. That’s not going to get you money for the health service and universities. This nationalist discourse will become a more right-wing, anti-public spending discourse. That will contribute to making the political system return to a left-right system, which to me is the most promising way to make social and economic progress. Not because the left is always right and the right is always wrong — both sides have different viewpoints and different economic experiences to bring to the democratic table.