The Urban Housing Crunch Costs the U.S. Economy About $1.6 Trillion a Year

The dearth of affordable housing options in superstar cities like New York, San Francisco and San Jose (home of Silicon Valley) costs the U.S. economy about $1.6 trillion a year in lost wages and productivity, according to a new analysis from economists Chang-Tai Hsieh of the University of Chicago and Enrico Moretti of the University of California at Berkeley. The study, which journalists like The Economist’s Ryan Avent and Vox’s Tim Lee have written about, was made publicly available as a National Bureau of Economic Research working paper earlier this month.

While we know that cities and metro areas contribute massively to economic growth—the nation’s 380 plus metro areas generated $14.6 trillion in GDP in 2012, about 90 percent of the total—we know a great deal less about which factors limit the growth of cities and metros. Economists such as Edward Glaeser have raised important questions about how antiquated zoning, building codes and NIMBYism restrict development and therefore damage the economy, but until this study no one had developed defensible estimates of the costs of such constrained development on the U.S. economy broadly. The title of the study, “Why Cities Matter: Local Growth and Aggregate Growth,” reflects Hsieh and Moretti’s focus on ferreting out the contributions cities and metros do—or don’t—make to overall U.S. economic growth.