Regulation

Zoning Laws in New York, San Francisco, and San Jose Cut Americans' Wages by $8,775

And they've made the U.S. economy 9 percent smaller than it would it otherwise be.

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Lasse Behnke/Dreamstime

Why is housing in the coastal enclaves so damned expensive? The median rent for a two-bedroom apartment in New York City is now running at $4,260 a month; in San Francisco, the figure is $4,600. The national average, by contrast, is about $1,300. What gives?

Blame zoning. The Wharton Residential Land Use Regulatory Index reports that land use restrictions in New York, San Francisco, and San Jose are among the tightest in the country.

You don't have to live in New York, San Francisco, or San Jose to feel the effects. A new study by economists Chang-Tai Hsieh of the University of Chicago and Enrico Moretti of Stanford measured increases in the total factor productivity—that is, the efficiency with which inputs like labor and technology are combined to yield outputs—in 220 cities from 1964 to 2009. They concluded that onerous land use restrictions in high-productivity cities have huge spillover effects on the rest of the U.S. economy.

In a nutshell, artifically high housing costs keep workers from moving from low-productivity areas to high-productivity cities, thus depressing wages and economic growth. Those workers don't just get stuck in low-wage regions: Because they're stuck, job competition drives down the local wages even more. Meanwhile, most of the extra output produced in New York, the San Francisco Bay Area, and other overregulated regions are poured into housing costs rather than invested in more productive assets. In that way, highly restrictive zoning depresses economic growth and GDP.

"In the 1960s, developers found it easy to do business in much of the country," the Harvard economist Edward Glaeser noted in 2014. "In the past 25 years, construction has come to face enormous challenges from any local opposition. In some areas it feels as if every neighbor has veto rights over every project."

If land use regulations in New York and the Bay Area were set equal to the median U.S. city, those area's average wages would be 25 percent lower, but reduced housing costs would have more than made up for that. Furthermore, the researchers calculate, GDP would be 8.9 percent higher (as of 2009), translating into an addtional $8,775 in average wages for all American workers.

Still, it could have been worse. In the period studied by Hsieh and Moretti, Southern cities tended to eschew highly restrictive land use regulations. As a result, they have much lower housing costs and were responsible for about 33 percent U.S. aggregate GDP growth. If the big Southern cities had adopted the median U.S. level of residential zoning, the economists calculate, the change would have reduced GDP growth by 25 percent.

NEXT: Pro tip for politicians: Don't body-slam reporters

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  1. Employers should be running from New York City and San Francisco as fast as they can.

    1. They have been doing that for decades, with mixed results. It saves them $$ but it turns out a lot of people don’t actually want to work in Stamford or Concord if they have a choice.

      1. Concord is nice. I would much rather work there than downtown Oakland, which is actually much nicer than SF.

        I really don’t get the romanticizing of San Francisco. It is a shitty place, with high crime and they have to have a special paint on the buildings so pee will bounce off it. Yeah I’m going to pay $4,600 a month for a tiny old run down place on a sketchy street with drug addicts everywhere.

        Maybe if that was across the street from AT&T Park…..

        1. I really don’t get the romanticizing of San Francisco. It is a shitty place, with high crime and they have to have a special paint on the buildings so pee will bounce off it.

          ^ This.

          I, too, greatly prefer Oakland.

  2. Kinda slow here today, so

    Appeals Court Rules Against Revised Trump Travel Ban

    WASHINGTON ? The federal appeals court in Richmond, Va., on Thursday refused to reinstate President Trump’s revised travel ban, saying it discriminated on the basis of religion. The decision was a fresh setback for the administration’s efforts to limit travel from several predominantly Muslim countries.

    Enough already of these liberal, so-called “courts” thwarting the will of the Commander. The sinister Muslim toddlers must be kept at bay. Who can predict with certainty that they won’t grow up and kill honest, hard-working, American Christian heartlanders? What America needs now is a precautionary principle for human beings. It’s the right solution at the right time.

    https://tinyurl.com/lb99oot

  3. FoE: The agglomeration effect is too great to cause them to flee, though California is trying its best overcome that and drive out business.

    1. So can the United States go ahead and secede from California, or what?

      1. I’ll get the cannons ready.

        1. Just line them up on the non-existent border between those other states.

    2. IOW, California: the Michigan of tomorrow.

  4. externalities. sounds like we need a federal zoning tax on government employee pay and common sense regulation-control.

  5. “Furthermore, the researchers calculate, GDP would be 8.9 percent higher (as of 2009), translating into an addtional $8,775 in average wages for all American workers.”

    I wish they would have calculated the cost of HUD into the study too. I was reading the other day that someone living in San Fran can earn $100,000 a year and still qualify for HUD assistance. Pretty sure that raises the cost for everyone as well.

  6. The most likely response

    “Just add more rent control. The only reason that hasn’t worked yet is that it isn’t punitive enough”

  7. Did it ever occur to people that that is the POINT, to make housing artificially inflated in the bay area? Everyone who bought a home 15, 30, 45 years ago are loving it right now, and they all plan to cash out an move out.

    1. Not to mention property tax revenues . . .

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