More on Housing, Inequality, and Economic Growth


twenty20_ed1a3b03-c953-4f77-ae69-d5b73c72acc8-e1460750194459As I wrote in my latest The Week column, inequality worriers should take a hard look at what’s happening in US cities. Turns out poorer Americans who live in some of the country’s most unequal places, such as New York and San Francisco, have some of the best longevity outcomes.

Researchers speculate that “low-income individuals who live in high-income areas may also be influenced by living in the vicinity of other individuals who behave in healthier ways.” Behaviors were found to correlate more closely with longevity than access to health insurance. As I also noted, “Economists on the left and right have begun to deeply examine how zoning regulations and other regulatory barriers artificially inflate home prices in some high-income cities.” Including such as New York and San Francisco.

Other research also suggests more of us living in these high productivity cites would boost overall economic growth. White House economist Jason Furman:

Zoning can reinforce divergence across labor markets by impeding market forces that would otherwise help reduce income inequality and boost productivity. High productivity cities—like Boston and San Francisco—have higher-income jobs relative to low productivity cities. Normally, these higher wages would encourage workers to move to these high-productivity cities—a dynamic that brings more resources to productive areas of the country, allows workers in low-productivity areas to earn more, improves job matches and competes away any above-market wages (another type of economic rents) in the high productivity cities. But when zoning restricts the supply of housing and renders housing more expensive—even relative to the higher wages in the high productivity cities—then workers are less able to move, particularly those who are low income to begin with and who would benefit most from moving. As a result, existing income inequality across cities remains entrenched and may even be exacerbated, while productivity does not grow as fast it normally would.

More on this topic can be found in the new issue of The Economist. Ryan Avent looks at some ways to combat NIMBYism:

New buildings normally generate extra property-tax revenue for the city once they have been completed. Some portion of the expected rise in the tax take associated with a proposed new development (the tax increment) could be promised to nearby residents in the form of a temporary property-tax rebate, scheduled to last ten years, say, if the development went ahead. … An alternative to buying NIMBYs’ silence would be to reform planning procedures to balance NIMBY voices with those seeking more development. … Shifting the debate about new construction to the level of the city as a whole would change this dynamic. Representatives charged with thinking about the citywide loss from forgone development still have an incentive to push for limited development in their own neck of the woods. But it would be to their advantage to ensure that at least some building does in fact take place. In another recent paper Mr Schleicher and Roderick Hills of New York University reckon such dealmaking could be encouraged by using city plans as binding development “budgets”: one area could curb construction below the planned level only if a deal was reached to boost building in another part of the city. …

If cities fail to act, regional or central governments can take matters into their own hands. Evidence from America suggests that where state governments help to set building guidelines, NIMBYs have less influence. The government of Washington state is more involved in planning than that of California. Partly as a result, the housing stock in Seattle grew at twice the rate of the San Francisco Bay area in the 2000s; house prices correspondingly grew less. Other governments are beginning to heed the lesson. A bill in the Massachusetts state legislature would require cities to designate areas in which dense building can occur without a fight—a measure targeted at expensive, restrictive Boston.

Published in Economics
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  1. BD Member

    James Pethokoukis on Twitter: “Supply-sides have now embraced the caricature they spent decades combating.  Intellectual exhaustion.  Sad!”

    This is why Reform Conservatives are so popular with liberal media outlets.

    • #1
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