Significant restrictions on housing polices in three American cities significantly curtailed the economic growth of this country in the last half-century.
That’s right, if New York City, San Francisco and San Jose opened local housing restrictions and let the markets go as they may, the combined boost to the gross domestic product of this country would have increased by trillions of dollars in the last 50 years, research now shows.
According to this white paper released last month, “We estimate that holding constant land availability, but lowering regulatory constraints in New York, San Francisco, and San Jose cities to the level of the median city would expand their work force and increase U.S. GDP by 9.5%,” write Chang-Tai Hsieh, researcher from the University of Chicago, and his counterpart, Enrico Moretti, of the University of California, Berkeley.
From the mid-'60s into the new millennium, these three cities in particular experienced phenomenal growth, but only contributed a “small fraction” to the growth of the nation, the authors write.
It’s this finding last month that underpins the need for a cohesive federal housing policy that can supersede some of the directions taken by local municipalities.
For example, high-rise housing construction is booming in San Jose. But, odds are the rents on these homes will greatly exceed the means of the majority of the city’s workers. Without a federal mandate for assisted living arrangements, most of San Jose is effectively priced out of its own housing market.
Okay, so you don’t like the hyper-gentrification of New York City? Just do as these business owners did and move out, right?
Or join this supposed flock of multifamily investors to the smaller cities and stop making such a big deal about it.
This type of migration-based thinking would be fine, if not for the fact that the housing woes of New York, San Francisco and San Jose will continue unabated.
Therefore, the answer to fixing housing — and increasing GDP — is answering not how to stop people from leaving, but how to let more people in.
“Our results thus suggest that local land use regulations that restrict housing supply in dynamic labor markets have important externalities on the rest of the country,” the researchers conclude.
The conclusion to this is that housing reform needs to be far-reaching and national in scope. It's obvious some policies are costing the nation some gains in wage growth and housing access.
With the presidential election coming into our view, we're going to be watching for which candidate is willing to elevate this vital discussion.
h/t: New York Magazine