Anti-growth housing policy may have seriously damaged the US economy for decades
AEIdeas
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.”
A row of Victorian homes known locally as the “Painted Ladies” glow in the early evening sun following a rain shower in San Francisco, California, REUTERS/Robert Galbraith.
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. ”
Some of the public transportation projects that have been done in the United States have been complete disasters. A few years ago, Connecticut put in FasTrak, a dedicated “busway”. The 9.5 mile road cost over $500 million, and the current fleet requires a $17.5 million annual subsidy (equal to $999 per bus per day, and all 48 buses don’t run each day). It’s built between two decayed cities (New Britain and Hartford), and there was really no reason to build it. In Phoenix and many other cities, municipalities have spent considerable sums on various local train networks or light rails or streetcars. These end up being excessively expensive per rider (particularly if you exclude rides to sporting events, which often make up a sizable portion of the ridership). There are certain places where local rail is useful (NYC, Chicago, Boston, etc), but there are many cities where it just simply isn’t viable and sucks money from other public transportation.
You don’t provide the calculations behind your subsidy figures, so let me ask. Fixed-guideway transit frequently sparks development along its route that can make subsidies a good investment. BRT is kinda fixed-guideway, so, serious question: Were development projections done along FasTrak’s route? Over what future time frame? How if t all does that affect the $999 per bus per day subsidy? Were calculations done showing how many more people now have access to how many more jobs? In terms of regional economic growth, how do those numbers figure in to the ROI calculation? In other words, what were the inputs into your subsidy figures, and were they the correct ones?
What? Government interference with markets led to lower growth? If only there were some kind of theory that would have predicted that.
There is also the question of how mobile some workers are. The 2008 housing crash taught us that our relentless push for homeownership has a significant downside in terms of worker mobility. Even if you really want to move, it’s hard to get out from under a house you were incentivized into buying (because hey, homeownership!) and for which you now owe more than it’s worth.
Strike one on Big Brother’s environmental laws, adoption of the Int’l Building Code and OSHA reg’s. Strike two on environmentalists who block all urban growth / sprawl. Strike three on NIMBY homeowners & city councils. Three strikes and you’re out. So, maybe employers should move their operations to rural America where they’d be greeted with open arms.
Strick four for Bill Clinton’s destruction of the housing market through the Community Reinvestment Act
Government disincentives ( zoning laws, employment liscencing ) to employment create poverty and hamper social mobility
I remember, in the early ’70’s hearing that a thousand people a month were moving to Ca. Then in the ’80’s the reverse happened. They could sell their house in Ca. and buy two or three houses in another state.
The northeast corridor has about 10 times the population density of the rest of the country. That is the only way you can make commuter rail or transit self supporting. By the way, half of the population lives within 50 miles of a coast.
In order for commuter rail and transit to be self supporting, the population density has to be very high. The area around the Northeast corridor is 10 times more dense then the rest of the country. Half of the population lives within 50 miles of a coast.
I can remember hearing that a thousand people a month were moving to CA in the early ’70’s. In the ’80’s people started moving out of CA and selling their house and buying two or three houses in another state.
I’m curious why everyone thinks rail (and transit in general) has to be self-supporting, while it’s perfectly accepted that we subsidize roads and highways. (Rhetorical question; no need to answer.)
The high productivity metro areas he is talking about could just as well be more decentralized geographically with the enhanced Info Tech. There is no reason for Info Tech to be highly centralized in urban areas. It’s one of the problems with our economic structure — and thus, slow growth. The centralization is just one indication of the political influence that goes with wealth.
I’d love to see data that support this assertion, because most of the data I’ve seen support the opposite — that there is significant economic benefit to industry clustering and concentration, especially in tech and other “innovation economy” sectors. If you have links, please share!
The only area that commuter rail or transit can be self supporting is in densely populated areas around the Northeast corridor which has 10 times the density of the average of the rest of the country. Actually, 50% of the US population live within 50 miles of a coast.
Anti-growth policy has its upside…slower growth is easier to manage, in terms of environmental regulation and historical preservation. Uncontrolled growth is called “cancer” for a reason.