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Anti-growth Housing Policy May Have Seriously Damaged the US Economy for Decades
In a dynamic economy, finance, ideas, people, and other resources flow to their most productive use. It’s an economy of constant disruption and change. Companies rise and fall, begin and end. Workers change jobs, moving if they must. Social mobility is high, and hopefully income growth, too. Misallocation of resources is the enemy of growth and opportunity.
But in his new book, “The Complacent Class,” Tyler Cowen describes modern America as a society that is “more risk averse and more set in our ways, more segregated … sapped … of the pioneer spirit that made America the most productive and innovative economy in the world.”
One cause of this dynamism decline, Cowen argues, is that it’s so darn expensive for workers to move to dynamic, high-productivity cities. In making this case, he cites the research of UC Berkeley economist Enrico Moretti who, as it happens, just released a new paper on the subject with Chang-Tai Hsieh of the University of Chicago. The researchers look at the “spatial misallocation of labor.” The problem here is that strict restrictions to new housing supply — local residents have a huge incentive here — have effectively limited the number of workers who can access high productivity cities and regions such as New York and the San Francisco Bay area.
The shock finding: Labor misallocation from housing constraints “lowered aggregate US growth by more than 50% from 1964 to 2009.”
Of course, a perfectly dynamic economy is impossible, but the research does suggest a potentially high level of self-harm from bad governance. Two possible solutions are offered. First, copy other countries by having federal and state governments “constrain U.S. municipalities’ ability to set land use regulations.” The 2016 Obama budget contained $300 million in funding for grants “designed to provide an incentive to encourage more relaxed land use regulations and increase the overall supply of housing,” as described by the CEA.
A second idea: Vastly improve public transportation. The paper notes how a “vast network of trains and buses allows residents of many cities in southern England … to commute to high [innovation] employers located in downtown London.” This doesn’t mean building a hyperloop necessarily (as awesome as that would be). It could mean express buses.
There is a counterargument here, that high costs in key coastal cities can result in a broader dispersion of talent. Let me also point to my podcast earlier this year when Joel Kotkin expressed deep skepticism on land use deregulation: “You’re never going to change the San Francisco situation in terms of affordability by having more density. Density is very expensive to build, and it isn’t what people want. ”
Published in Culture, Economics
I don’t disagree with this, but doing away with zoning laws is not the way to go.
Consider this – if Reticulator had bought a piece of land, knowledgeable of the current zoning laws with the intention of doing something else not allowed by the zoning restrictions, he would be a fool, would he not?
I would rather see people motivated to change the restrictions themselves than for the laws to be absolutely done away with.
There have been, in our history and undoubtedly now, people who buy up large portions of land “speculating” that the zoning restrictions will change and they can build a huge commercial building on that land. Sometimes, they get themselves mixed up in attempts to change those laws, occasionally by greasing the palms of city commissioners to alter the zoning restrictions (what was happening here). Do locals have no rights to fight this or restrict this?
But at the same time, I also find it stupid that kebab or deli or sandwich shop can’t build housing accommodations above them. Some of the new town-planning measures (some fad, can’t think of the name of it at the time, but its urban development in miniature) have started allowing for apartments to be built above businesses (which I find quite fantastic and I know people who like that mode of living like I prefer trees and more trees).
Because this society, being a maturing society, is in the grip of another type of -ism: Return-On-Investment-ism (ROI). Many, many more people in today’s society are keenly aware that, even in spacious places like Rapid City, SD, that a good ROI involving real estate development involves medium-high density residential. And those people act accordingly, by attending planning commission meetings and giving a nice earful to the commissioners regarding higher-density residential developments.
That’s right: even the Great Plains believes 3 acres with a double-wide is a poor ROI. Speaking of the Great Plains, it’s the focus of getting a good ROI as quickly as possible that made a place like Williston, ND during the initial Bakken exploration ramp-up have apartment/house rental prices rival those of San Francisco and NYC. Investors/developers felt they had to condense a 30-year investment timeframe into about a 7-8 year timeframe. (Of course, since the “bust,” Williston now has apartment rental rates that are at the price range of neighboring places like Rapid City, Bismarck, and Fargo.).
Comparing San Francisco and New York is comparing apples and oranges. The Silicon Valley consists of 9 counties and 101 different municipalities. The heart of Silicon Valley is Palo Alto which is 28 miles to the south of San Francisco. For the federal government to get involved seems to be a complete rejection of Federalism. We should expect competition amongst municipalities to result in a Milton Friedman “Free to Choose” type solution. Companies and workers will choose to locate in the best location for them. Tesla put their headquarters in Palo Alto while building their auto plant across the bay in Fremont. Apple is headquartered in Cupertino. The zoning and rent control restrictions in San Francisco cause companies and workers choosing to locate elsewhere. It is messy, but not something requiring Federal Government intervention.
It depends on the value of those 3 acres. Personally a double wide on 3 acres sounds lovely. (provided those acres are covered by trees – not rusted out Camaros)
I once was invited out to party at someone’s country house – its one of these rural villages a few miles out of Edmonton. A small wood frame house, on 2-ish acres. He had a BBQ all setup over a wood fire pit – sitting in his yard, smelling the burning wood – the wind in the leafs… It was a memorable and lovely day. I was really jealous – how much stress can it knock out of your day, to be able to sit out there, and just listen to the wind?
Right, because the fourth largest city in the country (and the second fastest growing) is an unmitigated hellhole because it doesn’t have zoning.
The snark isn’t appreciated. If you are talking about the federal government forcing cities to do away with zoning, then it isn’t just about the largest city in the country and their zoning issues.
It then also becomes about the township of 500 people who are fighting to maintain their way of life in some remote corner of the US, about 15-20 miles from a large urban downtown.
I understand it has other ways of accomplishing much the same thing. I’m not familiar enough with it to say which is better. I do remember the first February we spent in Texas when we kept running into people who welcomed us to the state and told us it’s all good except for Houston. Even people from Houston said to stay away from Houston. (We didn’t.)
I just have to say that in the last 6 months of my reading here, this is the most comments I have ever seen racked up on a Pethokoukis thread.
Yeah, and there’s a lot more that I’d like to add, but I’ve got to run now.
Its the first time he’s been right.
Normally he’s so wrong, that he’s the Arthur Fonzarelli of wrong.
I don’t believe the federal government should force local governments to get rid of zoning. I believe citizens need to be informed that “our town will have strips clubs on every corner and trailers in our swanky neighborhoods if we don’t have our precious zoning!” is simply not supported by facts, and that they should work to get rid of zoning.
I think citizens should be informed about how zoning makes their own lives more difficult and expensive for no benefit beyond wealthy landowners who get to artificially inflate the value of their property. Of course, “rob the poor to feed the rich” is always popular with the rich.
Correct. Instead of land use being controlled by whatever idiots get themselves elected to the city council, it is controlled by the deeds themselves. This allows prospective buyers far more security in purchasing land, because land covenants are nearly impossible to get amended. One can buy into a subdivision lot facing the street knowing that one’s house can’t be turned into commercial property when it becomes convenient for some campaign contributor.
You know your attitude is just as elite as you claim theirs is.
You think people defending their way of life from an influx of high density housing are only a bunch of rich snobs protecting property values and nothing else? Some of these people live on 2 acres with trailers for houses, above ground pools, and bon-fires for entertainment (because they can’t afford a house, an inground pool, and a movie theater ticket and fancy dinner). Their way of life (with their kids riding their bikes up and down dirt roads to visit friends, chopping down a baby tree for “fun”) can’t be had in high density housing. They can’t let their kids run naked in the “common area” yard. They can’t let their kid go swimming topless in the back yard while they cook dinner or clean the kitchen floor. Of course, you’d likely look down on such idyllic living considering it trashy and irresponsible. The high density housing they could afford isn’t the same high density housing you could afford. They would end up in gang-ridden neighborhoods with their kids not being able to leave their homes without adult supervision. Give me rural white trash over urban any day, please!
(This is the life I grew up with… its one I actually like and value over urban living… its one I want for my kids. I see the pioneering spirit as people who couldn’t afford a good life in the city as having leaving it to build a better life outside of it… that’s what these people are. They took their meager means and built a better life outside of urban developments. And you seek to ruin it).
Question: do you really think developers want to build high density housing in rural areas? The reason to live in high density housing is to live near one works or plays, not to experience the inconveniences of rural life without any of the benefits.
At best, zoning keeps those rural fields and forests from turning into large lot subdivisions. Or rather, it doesn’t, because all it takes is a couple developers with deep pockets to get those zoning rules changed. (This being what is happening in the rural counties all around my metro area.)
Zoning against high density is done by suburbanites, not rural people wanting the simple life, because why would anyone pay a million dollars for a 1950s 1500 sq ft 3 bed 2 bath ranch on a .10 acre lot and then do anything that might cause it to lose value? And yes, that is what the Palo Alto housing market looks like due to zoning against high density housing.
Finally, please don’t assume that you know anything about where I have lived, where I’d like to life, the kind of lifestyle I have, or the amount of money I make, because I assure you, the previous guesses were wrong.
Why is it “wrong?” Thinking there are right and wrong answers when it comes to politics is wrong. Politics is about preferences. If that’s what the local people want, they should get it. The more decisions made closer to the people, the better.
ABSOLUTELY!
The situation detailed by Mr. Pethokoukis incentivizes businesses to move from huge, unmanageable cities to smaller, better-run ones.
There is a push to build past the Econlockhatchee River and into the areas between the 408 Expressway and I-95 on SR 50 in the greater Orlando Area. Previously, with Lockheed Martin and NASA at opposite ends of that stretch, employees would swap jobs between Titusville and Orlando. Some, understanding that job security wasn’t really what it could be, settled in the middle so they could easily float where the wind blows. As a consequence, suburban Orlando has been pushing up against rural areas past the Econ.
The historical agreement is no building East of the River basin. This was being challenged in order to build another of those mini urban centers I mentioned in a previous post. It was not just suburban homes (aside, wealthy? While not poor off, we aren’t rich snobs) but the farmlands and rural outcroppings that felt threatened and are now incorporating into their own city.
I’m sure some are wealthier than we are. Others are not. Some volunteer in Trail Life at a community church. Others spend their time doing Awana and vacation bible school at the Baptist church. Another owns a horse farm and others have farm land. And still others are content with their trailer and bonfire. Some want to maintain their quality school districts so their kids can still get a good education. These aren’t people planning on moving and needing to sell at high values. They are here for as long as they can swing it… they are settled, not investing in growing property values.
I made no assumptions… just pointing out your arguments were just as elitist. Not that YOU are elitist or rich.
But this is beside the point, because JP was recommending Federal interference which you also disagree with.
We’re going to have to disagree about what this passage means, then.
Here’s what it comes down to — who are you to tell someone they can’t use their property because you don’t like it? If you can get enter into an agreement with your neighbors that you both won’t do things (as my parents have with their rural neighbors prohibiting pigs), great. But if you don’t want to see the smoke from another’s chimney, as Daniel Boone famously said, then buy the property necessary to do it. Don’t take someone else’s liberty to do it.
Exactly.
I (currently) live in a town with a median home value of approximately one million dollars. (I rent.) The commute into the city costs a minimum of about $300/month.
My 2016 New Year’s resolution was to find a smaller city to move to – one with affordable homes, an easier or cheaper commute, and an actual middle class.
There’s been a spate of articles about how Raleigh, Columbus, Roanoke, and Omaha – among others – are just booming. College-educated young people are flocking there. Businesses are moving operations there – lower costs, basically the same talent pool.
Yes, businesses and people can be mobile. Go figure.
I think communities need to decide what they want to do and need to do. Goals and objectives.
I have seen so many communities in New England reinvent themselves for the sake of their residents.
I don’t think the feds need to get involved with this, but I do agree with the problem as described by author of the post. And areas that are dealing with high unemployment or urban blight of one kind or another could use some of these ideas presented here to help their residents.
I would like to see towns spring up along all of our major highways. I see so much land that that could be used for that purpose without intruding on any existing community.
And if I were the government, I’d look at a self-sufficient community as a group of people who are doing well and don’t need me and that I do not want to disturb for any reason. I’d be trying to inspire new communities, not change the old ones.
We need a plan for growth for this country.
I live on the peninsula of Cape Cod, which is a finite space, and we have been dealing with growth issues for the past thirty years.
I think the original post raises some excellent questions and proposes some good solutions that will work in some cases.
I think our country has outgrown its existing infrastructure and housing, and I think those problems are resulting in a restlessness.
We need a growth plan for five, ten, and twenty years into the future.
I didn’t read that at all. I will re-read it.
Needless to repeat, I don’t want to do away with zoning laws because it helps communities maintain some control over their community and I think that is a good thing. You can’t have Amish communities without giving that community the right to limit what gets built where.
However, if zoning laws are what is preventing businesses from moving to “dying” towns and cities, then perhaps those of us near the problem areas could get involved in those areas and help the people living there push for change. How many of those people are aware of it?
Great Post James,
First , those above who think “denser” housing is less expensive – think again. It is not. Not by a long shot. It is not only that the cost of construction is more expensive ( by the way in places in California the numerous ridiculous inspections cost a ton of money and a ton of time) but the cost of development is much more. It normally takes years to one of these projects through the planning and permitting process. That not only costs a lot of money but many projects never make it through to construction.
Mass produced housing in the suburbs is (was) much less expensive, by a ton. I am an Architect in LA where housing restrictions have limited new housing to only denser apartments and condos. None of those units – even in scary slum areas – are “affordable”. They are all beyond the means of most of those in the workforce of LA.
Yes, certain developers – because they want to develop something – have bought into the idea that there is a market for these units and many units have been built in downtown LA and Hollywood recently. Only time will tell, but the last time this happened prior to the 2008 crash, thousands of units were foreclosed upon and never rented or sold at anywhere near original asking price.
But there is a larger story to this housing crisis.
In the old days of LA, which built the largest industrial base in America, not only was housing built in the suburbs but industrial and commercial buildings were built there too. There was back then a symbiotic relationship between industrial building and housing. Industrial buildings were built purposely was there was affordable housing, because there would be a workforce to work in the those industrial buildings.
I worked , decades ago, on hundreds of industrial buildings all over Southern California. Many were small multi-tenant spaces 1200-1800 square feet or small building 2400 t0 3600 square feet . They sold or leased like hot cakes. But that was before all the housing and land use restrictions, all the restrictions on manufacturing and back when the freeway system was not clogged to death. Those industrial businesses created thousands of new jobs every year and were the backbone of Southern California’s rapid growth for decades until the late 80’s and early 90’s when big intrusive government destroyed that miraculous job creating machine.
Now since the freeway system has not been improved in any significant way since 1975 ( Thanks Jerry Brown!) and since drives across town now take hours rather than minutes, one cannot get to the industrial areas built on the periphery anymore. Housing now has to be built close to work because commuting times are so long and getting longer. However, none of these “denser” developments are close to any growing producers of full time middle class jobs. The housing/manufacturing restrictions in California have truly created a disaster that is going to blow up in our face.
No, what you have here is people using the government to destroy the free market, the same way big business lobby’s the government for regulations that keep competition at bay. Of course if you have the ability to keep your privileged status by simply pulling a lever instead of having to actually pay for it you’re going to do it. That doesn’t imply it’s somehow the “correct representation of the people’s will” or something, it’s cronyism and it’s wrong.
Now, I’m agnostic about the best way to fix this. I’m not saying the federal government should necessarily force municipalities to change because that could potentially do more harm than good, but please, let’s stop with this fantasy that somehow what people are doing in these cities is somehow right and justified.
“Monetary concerns” is the only way to correctly express the competing interests of what people actually want. Market failures exist, but that doesn’t justify doing anything when the market would result in a reasonable solution most of the time.
No, there’s no right to do something that you are not willing to pay for.
What if what people want when they agitate for homes in suburban and rural areas (thereby driving demand up while not increasing supply) is open areas not characterized by high density residential zones?
So the answer is to respond to demand for homes in those areas by making them the exact opposite of what they find so attractive about it in the first place?
You are absolutely right. If you don’t want to pay for the land that is in high demand so you can live there (after others already moved there at lower values), then you have no right to it.
You are the one who thinks high density building makes residential zones more economically efficient and that that’s the only metric that matters to down trodden all other views on the matter, right? (oh rhetorical strawman… my bad)
I like the concept of businesses moving to where the workers are.
One of the problems with this is that the upper management can afford to live in high cost of living locales, so they tend to want to locate their major operations there. i.e. The bay area is an awesome place to live if you are wealthy.
Sometimes I think the high productivity cities that people like Pethokoukis point to, is just an allusion. Yes, GDP per capita is higher in Silicon Valley then elsewhere, but one’s dollars doesn’t go as far there. I would like to see a study that adjusts productivity to cost of living. If we did that, we might find very different results.
People want things all the time that they can’t afford. We wouldn’t see it as valid to argue “everyone has a right to a yacht because they want it and voted for it.” Wide open spaces in places of high density commerce are extremely expensive. Just because most people would think it’s nice to have doesn’t mean they get to demand it from other people.
All opinions matter, but they only matter insofar as people are willing to pay for them. Most of us would like to live in really nice areas with a decent amount of space, but only some of us are willing and able to pay for it. It’s simply the best way to allocate scarce resources. It’s not that economics is the only metric that matters, it’s that it’s the most efficient way to assess everyone’s desires and come out to the least objectionable result, all things considered.
I’m not certain I understand your original assertion anymore. You seemed to be all in favor of dropping zoning regulations so high density housing can more easily be built and lower costs of land.
Are you trying to tell me that if I want to have that rural life, then I should buy the 3 adjacent lots in my area so I have the land I want to raise my family on? And that if I don’t, I must not want it that bad and have no right to it? Is that your argument?
Kids being able to ride their bikes up and down the road only works in suburban and rural areas. For some reason, high density (no matter its quality!) typically is accompanied by higher crime rates unless you have a very present and active police force walking your neighborhood. I can’t control that under your system. I can control that under zoning rules.
I think you’re mixing up Mike with me, but yes. If you want to be guaranteed that the closest high rise will be no more than 10 miles away, then either buy a circle of land with a 10 mile radius or create agreements that run with the title with all the landowners in a 10 mile radius to not build high rises. If you don’t want to convince your neighbors to voluntarily give up their right to develop their property as they wish, you shouldn’t be allowed to compel them with the law. It’s their land, not yours, and if they decide that they’d rather have a tiny beach house in Hawaii and let a developer turn their five acres of swamp into apartments, that’s their prerogative.