ANNE WU – APRIL 2, 2024
Larry Rosenthal is an Assistant Adjunct Professor at the Goldman School of Public Policy and serves as the Executive Director of the Berkeley Program on Housing and Urban Policy. His research interests include municipal fiscal distress and participatory budgeting.
Anne Wu: Starting off, I think one thing that makes you different from the other professors that BER has interviewed is that you have a background in law and policy. So, as someone with that kind of background, how do you perceive the intersection between law and economics, specifically in the context of urban development and housing policies?
Larry Rosenthal: I think that economics is a social science that wishes to take responsibility for distinguishing between optimal and suboptimal conditions. And I think the practicality of taking those judgments and turning them into rules or programs or standards, the practicality of that and the practicability of that, is something that economics, at least in its raw practice, doesn’t particularly attend to. It’s economics at the intersection of other practices that allows us to forge that inquiry and say, well, if it’s true that an institution isn’t optimal, isn’t reaching some other kind of optimized state, what can we do about it?
The intersection of law and economics is particularly interesting for me, simply because it proposes that agents of the law, specifically judges and people who are involved in the arbitral arts, the decision-making arts within those cases, that they should be thinking more as economically informed social optimizers and that’s the kind of vision of the field that was born roughly in 1960, law and economics. I think the first volume of the Journal of Law and Economics, JLE, was born in 1960. And I think its founder eventually got his Nobel Prize, but that was more than 30 years later, and that’s Ronald Coase. So I feel like my exposure to that starting as a lawyer, and then recognizing that there are social science lenses and professions that could essentially set economics-informed goals in how they do their work, that was new to me, and it was fascinating when I discovered it, and it’s still fascinating now.
Wu: Recently, Alameda County acknowledged housing affordability as a state of emergency, and now officials are being required to take serious steps to resolve this because homelessness and the number of unhoused individuals has increased by a significant number in the past few years, especially after the pandemic. So, once again, given your background, how do you perceive this acknowledgment? And what do you think are the most pressing issues that contribute to homelessness in Alameda County?
Rosenthal: I think that “emergency” kind of turns into a label and it would be nice if “emergency” as nomenclature signified higher rank among political priorities, more pressing budgetary priorities, and, more importantly, more reliable public policy interventions and legal interventions that really get at the crux of what’s causing homelessness rates. And that helps resolve some of the life challenges that the unhoused suffer. I’m not sure that’s the case I’ve seen in the field during the years I’ve been involved, this notion of emergency branding. The counterfactual to emergency is not all that comfortable, meaning that it imagines that there would be an acceptable level of life for the unhoused and that there are worse and better conditions for the unhoused or that if we got below a certain rate, that it wouldn’t be less of an emergency. And that’s just never been comfortable, I think. And I went through a name change experience with an organization that I’ve worked with in the East Bay, which used to be called Berkeley Food and Housing Project. And the board of directors shed the label of “emergency” simply because they really didn’t like what it would imply. But let’s recognize that for those who lack sufficient support in their lives each day, and don’t have assurance that they will have shelter, that they will have sustenance, that they will have safety, and that they’ll have health care that they may need quite urgently, that’s a long standing condition. And so this notion of the “emergency” label,” I think it’s a political win and we want to interpret it in political terms how it translates into actual changes in policy. For example, if the good leadership of Alameda County decided that the affordability emergency really was a supply shortage emergency, then they may act to expedite all existing reviews of pending development proposals. They might attempt to set aside environmental and other neighborhood challenges to those proposals. So it turns out in terms of political cost and responsibility, labels are easy. Action is hard. So that would be the lens that I bear to bring; it would be a lens that I think is kind of a demanding level of skepticism to determine whether or not the rhetoric is matched by new and different action.
Wu: So, correct me if I’m wrong, but basically what you’re saying is that you have some doubts about this declaration that this is a state of emergency, and you think it might just be more of a performative action by Alameda County.
Rosenthal: I think performative is a good term. If you look at the technical powers of agencies and legislatures at various levels, to engage in what you might call the declaratory action, they can declare that officially. Yesterday was National Tennessee Day. It’s a declaration. You might also consider it within the broader category of action by governmental units that’s advisory in nature, not compulsory in nature. For a community that lacks recognition, lacks dignity, lacks a kind of priority, politically, a declaration can have pretty strong value, meaning it is progress and it’s worth fighting for. So I don’t mean to minimize it on that front. I just wonder whether, in the broader scheme, a declaration of significance of some need is the bobby prize compared to the actual delivery of goods and services and, in this case, shelter and safety
Wu: We all know that the pandemic has transformed the way that our society functions; that’s not a very controversial statement. And we also know that the pandemic brought about a lot of changes in housing policies, such as eviction moratoriums. How effective do you think these moratoriums were, or these measures in general were, in preventing homelessness during the pandemic, and what challenges do you foresee as these temporary solutions are lifted?
Rosenthal: I think if we have a look at eviction as a legal phenomenon, as a set of landlord rights, as an accompanying set that hopefully rides along tenant protections in the middle of an eviction system, we’re already reductively looking at a smaller population of people who are asked. You don’t get evicted unless you manage to secure a lease. So you have occupancy, you have access to that unit, you probably have a key or some other mode of allowing yourself in and keeping others out. And so there that is, and that’s an arrangement. Now, within that population, I think what we want to ask is what proportion of that population is essentially at risk in terms of housing and shelter. So it might be about how many months of rent they have in savings. It might be about the stability of their employment and income flows that they’re utilizing to secure payments. The payment flow that they need to keep the place. When we talk about a pending eviction, or evictability, say, we’ve reduced the population even more because, of course, that would be the subpopulation of folks who are evictable, meaning that they have violated their lease. And let’s just talk about the sub-subcategory of folks who have simply stopped paying, right? So there you might say, there’s a number of people who are in default on their leases. Okay. In ordinary circumstances, and it’s not a lot of people. If you really look at the total number of leaseholds, and a leasehold is the estate and land that a tenant enjoy, of all the people in Berkeley right now, throughout the housing stock of Berkeley, who are occupying a space by way of a lease, the number of people who are in default, it’s actually a pretty small proportion. The number of people who are in default, who against whom the clock has started running, meaning that the time-based eviction protections that are in the law, where the landlord actually has to give notice, give an opportunity for the tenant to do something called cure, which is to pay up and pay the back amount, maybe interest, we’re talking about a relatively small number of cases against the tableau of all of the housing stock. So, in regular non-pandemic circumstances, there’s also a flow of evictions where the landlord does take that very drastic step and we want to look closely at that decision point, because it may well have followed for a lot of ordinary, human, empathetic landlords who want to do the right thing by way of how they treat people. This might be a longer story of the fact that they stopped paying and restarted paying, or that the landlord, out of the goodness of their heart because they have the financial wherewithal, they already forgave a month or two of rent. So I think that the state of eviction within this very small segment of the housing population is already a place where the relationship has become broken, and the landlord has decided to take that ultimate step. One of the things I want people to understand about landlords is some of them are people, but not all of them. So some of them are operating a portfolio level and their management companies, and they’re kind of impersonal and maybe they get to eviction faster, they can process it more efficiently. But within that population during pandemic, where you have that eviction and evictability in place, you have the conditions in place and you have non-payment and financial stability on the tenant side, the moratorium did everything. The moratorium was the difference between maintaining that residence and losing it. You know, what numbers of people, again, I think we’re talking about small numbers here, a lot of preconditions to get into that point. The economist will say, if you extend moratoria to too many households, they’ll adjust their behavior accordingly. Why would they pay if they’re protected from eviction? And you might say that’s kind of the unfortunate consequences of the protection. I don’t know how big that population is either, in practice.
Wu: It kind of reminds me of moral hazard, where there’s that protection and then beneficiaries start behaving in different ways, or with more risk.
Rosenthal: I think it’s a perfect moral hazard, actually. And, you know, it is this kind of unappetizing consequence of an otherwise right-thinking policy choice. And so, we want to look carefully at that, but has the moratorium had an impact? We can’t doubt that it affected some landlords and some tenants in substantial ways.
Wu: But it took a while to get down to the point where it was affecting those people substantially.
Rosenthal: You just don’t know what the distribution of prior conditions looks like. So, you know, if when pandemic really hits in March of 2020, if you know you have in all of Alameda County 500 households that are in default, in arrears on their rent payment, already used up the patience and generosity of their landlord, and we’re waiting for their notice of eviction to be delivered to them, the pandemic kind of slowed down everybody. It wasn’t immediate that we had the eviction moratorium. I forget when that came online; it was probably relatively quickly because it started at the federal level, if memory serves, and I think California extended it, but I think it’s a great example of this kind of behaviorism. And no matter how you postpone things, treat things on a temporary emergency basis, you then create a raft of challenges. If and when you want to essentially lift those protections and try to restore ordinary conditions, which evolves an eviction, I mean, there’s some proportion of evictions every year, in every metro. The great book on this is called “Evicted” and it’s by Matthew Desmond. And it’s a beautiful book about the realities of eviction, including cases where populations are being exploited by people that they share community identification with, it just happens to be that one side is on the landlord side, and the other side is on the tenant side. Really good sub-chapter, or another narrative about the mobile home elements of this, which has its one, very difficult to read, set of realities. And lastly, the fact that we’ve seen the multiplying of the supply of storage in recent years. I don’t know about you, but as I drive around my metropolitan area, I see so many storage companies just popping up on vacant land. Why is that a lucrative industry? Because the eviction industry is working overtime. And there’s so many people with insecure finances and social statuses that they find themselves in, essentially, a regular and inescapable cycle of eviction, and it’s heartbreaking.
Wu: Your research interests include municipal fiscal distress and participatory budgeting. How do you think these concepts can be applied to alleviate homelessness at the local level? Are there any successful examples or models that you find particularly inspiring?
Rosenthal: I think it’s a really interesting question. You know, the question that we were looking at in the wake of the mortgage meltdown in the Great Recession was, essentially, why didn’t more cities fail financially? There’s a chapter of the United States Bankruptcy Code, Chapter Nine. We all know about Chapter Seven — people filed to liquidate their businesses — or Chapter 11 — they filed to reorganize their businesses — or Chapter 13, which for consumer bankruptcies. There’s this separate chapter, which is when a city goes under, and if a city goes under, it is a particularly urgent situation for the residents of that city. And we’ve had a number of examples in California: Stockton declared bankruptcy, Vallejo declared bankruptcy, and so we were very interested in exploring this question. I think that, let me just put it this way, we did not find that a pressing cause of the utter failure of a city’s financial system and wherewithal, that they just went broke trying to cover their expenses, and then raise their hand and say help and file for federal protection and Chapter Nine. Rarely, if ever, was it the case that their social services burden because too expensive. We were helping too many homeless families or we were trying to implement too aggressive a universal basic income program or experiment or something like that. It was far more about mischief in the financial markets where they had tried to refinance existing debt in ways where suddenly those steps were called, especially in connection with some things that happened with derivative instruments that got us into trouble in that era, led to the mortgage meltdown. Also, some poor major project decisions where they tried to finance, you know, a huge new civic center when they really shouldn’t have, they couldn’t afford it. So, I don’t see a direct connection between this study of urban fiscal conditions and bankruptcy, which was kind of a cottage parlor kind of study where we’re just looking at this interesting phenomenon.
It turns out I’m pretty convinced that the reason that we didn’t have as many bankruptcies as we feared would occur is that the financing of urban services is diversified. Our story was, “Wait a second! The bottom is falling out with the property market. All those pieces of land and the structures on them are now devalued. And, therefore, the property tax is going to go down and therefore you’re not going to be able to pay for your steady expenditures that you wouldn’t have to pay for anyway.” Didn’t happen because of diversification in terms of the sources of funding and adulthood among the people who are managing the fiscal condition of those cities. They are political people who manage affairs regardless of the political and fiscal distress out there in the world. “It doesn’t matter that, if every homeowner is anxiety ridden because of the mortgage market, fine, but we’ve got you over here, we’re CPAs and we know what we’re doing. We’re not going to let any irresponsible decisions take place.” And that standing responsibility and ethic of really trying to be careful, you might call it sound planning financially, that’s the pervasive reality in these cities. And that’s really good news, because it doesn’t matter the extent of unfunded promises that politicians wish to make and deliver on, they’re not going to be able to do what they wish because the fiscal managers will keep things under control. So I don’t see a direct connection there.
The other thing I would say about the participatory budgeting work is that you would wonder if a lot of the projects and purposes that the citizens would wish to pursue, where the basic story of participatory budgeting is that the city says to its voters, its residents, “We’re not going to use all this money we got from you in the tax system. We’re gonna give you some back, you decide how to spend it.” And it’s really wholesome. Really interesting. It kind of recharges democracy in very interesting ways. In the work that we did, I did not see a whole lot of altruism and philanthropy in those proposals of the sort that we’re talking about, where we would say, “Okay, this project is about firming up the social safety net so that people on the street will have shelter.” I didn’t see a lot of that. I saw recreation. I saw leaky roofs at senior centers. Finally fix that roof. Or, you know, a volleyball court that had fallen into disrepair.
Wu: So, smaller projects?
Rosenthal: Smaller and more, let’s call them elective luxuries rather than necessities. My idea going in was, “Oh, wait a second now. I’m happy to give that money back to the people out of whose pockets it was raised, right.” That’s a really wholesome thing to do. But what are they going to choose to spend on, and my little counterfactual was, we have a deferred capital budget; the city prepares this list of expenditures we’re going to have to make eventually and we’re not going to fund them yet. And they call it deferred capital and, you know, I didn’t see a single participatory budgeting participant come in and say, “Let’s look at the deferred capital budget and try to fund some of that.” I also had this little heuristic where, you know, they would much rather fund ping pong than potholes. We better fix our potholes. It’s for the good of all, but they prefer a new ping pong table for the rent center. I mean, I’m painting with a broad brush here. But I think, also, let’s just acknowledge that the participatory budgeting amounts were really not at a scale where we think that they would make a huge impact, were they completely devoted to the social safety net. So it might be kind of a scarecrow argument I’m making there. That being said, those are the connections that I would draw.
Wu: More broadly, what emerging trends in public policy do you see that are shaping the future of urban economies, and what advice would you give to policymakers, policy analysts, and economists in navigating these trends?
Rosenthal: I think there’s a thirst in city governance to try and balance the development registry with who the future population is likely to be, and I think every city is going to have a mix of people who have recently arrived, people who have recently left or are planning to leave, and then this core of people whose families have been there for a long time. And I think that the issues that we have had to work on in recent years around the state and character of these places, the cohesion of their neighborhoods, the preservation of the heritage that people hold dear, I think people, at first, got kind of worn out by the repetitive nature of some of these fights, and there’s a lot of factionalism, meaning that if you’re in a given city from Fresno to San Francisco, or in other states, of those kinds of places, and we could even look at smaller towns, of course, that there’s going to be a segment of the population that wants to mind the culture there, that wants to preserve these assets. And what they’re facing is the real expense of doing so, and the necessity to continue to adapt to changing tastes. A great example, in a lot of these places, is what the heck we’re going to do with buildings that used to be in the cinematic industry. There are a number of buildings that housed former cinemas, and they are vacant and going to sea. Why is that the case? Well, it’s because people’s tastes have changed, because the technology has left those uses behind, the fundamental economics of entertainment have changed, where we all have tolerable budgets for entertainment streaming right into our homes. And, so, do some of us still like to go to the theater? Yes, some of us do still like to do that. But, the number of theaters is falling and the number of vacant buildings is increasing. So, those are assets that, at least if you look at the fundamentals, are not worth pursuing. And, in a sense, you have this romance and higher, kind of, value, principles that are informing the need for cultural preservation, these attachments, you might say, kind of coming face to face with structural change and financial reality. And I think that cities are going to be grappling on a new frontier that way. The jury’s out in a big way about how much place, ultimately, will truly matter. There was a centricity to cities. There was a way in which the life of the city was somehow circumscribed and the most beautiful and pleasant and rewarding city to live in was something that you could occupy as a home and say, “Yes, this is where I live, I’m so proud of it,” and everything you wanted was somehow present there. It was almost self-sufficient, that centricity is what I’m talking about now. And, with what we’ve done with technology, or what technology has done with us, and then with the un-desired, or at least we didn’t order them up in advance, lessons from the pandemic, I think we’re confronting a future that is more and more placeless. And I think that’s leaving a lot of us feeling kind of empty when it comes to our real lives in real space, and I don’t know where, I don’t know how that comes out — I’m not much of a futurist anyway.
But I think there still is an appetite for a civics of place that’s about presence, neighbors, collaboration, and vibrancy, right? We know we need it in schools for those communities that are lucky enough to have higher education institutions. We know we want it there, we know we want it in our civic organizations, and we know we want it in the arts, and in our recreational facilities. Can we keep that going, even though people are at home and people don’t have that strong identity with place? We’re going through this transition, and I’m not sure how we’ll redefine urban life in the wake of that. And it concerns me greatly, a lot of the old urban theory, urban economics, and urban policy may need to go back and sit on the shelf because I’m not sure how it’s going to lead us forward. Great debates, you know, between, say, the Jane Jacobs and the Robert Moseses of the world; it’s about great cities and what makes cities great and whether cities are going to survive. Everybody is going to be in a place, we have physical manifestation, we exist as beings in space, but I don’t know what the city of the future really looks like. I know there’s a thirst, at least for some of us, but maybe we’re just traditionalists, maybe coming generations will see less place, be less connected to place.
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