For a growing chorus of urbanists and city-builders, the key to rebuilding our cities, reigniting innovation, and improving productivity lies in getting rid of the onerous zoning codes and land-use restrictions that are holding back much-needed development—particularly housing—in leading superstar cities and tech hubs like New York and San Francisco.
In a much cited and highly influential study of a year or so ago, two economists, Chang-Tai Hsieh of the University of Chicago and Enrico Moretti of the University of California at Berkeley estimated that land-use restrictions reduced U.S. GDP as a whole by roughly 9 percent a year—roughly $1.5 trillion a year in today’s dollars. That’s a big bite.
Now, an update to that study by the two extends their research and takes a deeper dive into the so-called “spatial misallocation” of people, jobs, and productivity that results from such land-use restrictions. One big takeaway, which supports their previous findings, is that such housing constraints lowered the aggregate growth by more than half between 1964 and 2009. That’s another huge number which understandably many urbanists and pundits have focused on, with some agreeing and some questioning their model.
Leave that as it may, my reading is that the study makes two other very important contributions to the debate over the future of cities that have largely been ignored.
A better case for investment in transit and high-speed rail
First, the study makes a powerful case—a potentially game-changing case—for investing in mass transit, light rail, subways and even high-speed rail to connect places together. Near the very end of the study the authors point out that such investments in transit are likely to have a much bigger positive economic impact than eliminating land use restrictions. Why? Because transit can link outlying places, where land is relatively cheap and housing more affordable, to the more expensive cores of these places.
As they put it, “[a]n alternative is the development of public transportation that links local labor markets characterized by high productivity and high nominal wages to local labor markets characterized by low nominal wages.” And then they get specific:
For example, a possible benefit of high speed train currently under construction in California is to connect low wage cities in California’s Central Valley—Sacramento, Stockton, Modesto, Fresno—to high productivity jobs in the San Francisco Bay Area. This could allow the labor supply to the San Francisco economy to increase overnight without changing San Francisco housing supply constraints. An extreme example is the London metropolitan area. A vast network of trains and buses allows residents of many cities in Southern England—including far away cities like Reading, Brighton and Bristol—to commute to high TFP employers located in downtown London. Another example is the Tokyo metropolitan area. While London and Tokyo wages are significantly above the U.K. and Japan averages, they would arguably be even higher in the absence of these rich transportation networks. Our argument suggests that U.K. and Japan GDP are significantly larger due to the transportation network.
Their factoring in of the long-run effects on productivity and economic growth would seem to change the terms of the debate over transit. Most leading economists dismiss high-speed rail, on the grounds that the (huge) immediate short-run costs exceed its immediate short-run benefits. (The latest estimate to build California’s line is $64 billion.) But Hsieh and Moretti are effectively arguing that the long gains in productivity and economic growth—and in creating more and better jobs—are even more enormous, adding up to a huge share of foregone productivity and economic growth.
Framed in these terms, investments in transit are more than just a short-term stimulus or way to alleviate congestion: They are a way to improve the long-term capacity of the economy to generate greater productivity, increase growth, and create more good jobs.
Without land use restrictions in superstar cities, geographic inequality would be worse
The second big takeaway from the study is that strict land-use restrictions in superstar cities and tech hubs like New York City and San Francisco have functioned to shift employment growth to other places, mitigating and staving off to some degree the growing geographic inequality of winner-take-all urbanism.
You don’t need to read all the sophisticated math in their paper to grasp the basic logic about spatial misallocation. If there were fewer impediments to building in New York and San Francisco, more companies, jobs, and people would flow there, and less would be left over for a whole bunch of places—especially parts of the Rust Belt that have been so hard hit by the economic crisis and broader economic transformation of the U.S. and global economies.
In fact, their models seem to suggest that, in the absence of land use restrictions, the contribution of New York and the Bay Area over the past few decades would rise from 5 to 12 percent of GDP growth. Rust Belt metros, on the other hand, would decline from 15 to roughly 11 percent of GDP growth.
When it comes to jobs, the study finds that between 1964 and 2009, employment growth would have been more than a thousand percent higher in the New York metro; almost 700 percent more in San Francisco; and nearly 250 percent higher in San Jose, in the heart of Silicon Valley. Meanwhile, the Rust Belt would be that much more rusty: Employment would be roughly 170 percent lower in Binghamton, New York, and Muncie, Indiana; roughly 200 percent lower in Mansfield and Youngstown, Ohio; and almost 300 percent lower in Kokomo, Indiana.
Another way to think about these land-use restriction is that they have functioned as a de-facto place-based policy, mitigating the adverse effects of geographic inequality. They have probably helped to stave off the worst of Rust Belt decline.
They might have given the Sunbelt a boost, too. While the study estimates that the rate of growth and contribution of growth of Sunbelt metros (with their more liberal land use policies), would stay roughly the same, the logic of their argument and much of the conventional wisdom suggests that the harsh land sue restrictions and high housing costs of coastal metros has at least in part contributed to the great Sunbelt migration.
In other words, land-use restrictions not only have effects on productivity and growth, they have significant distributional effects as well. Even as they have put the brakes on the development of America’s most vibrant metros, reducing the productivity and growth of the U.S. economy as a whole, they have simultaneously eased the spatial inequality. Just try to imagine how bad our geographic divide might be if New York and San Francisco were even more dominant than they are now—if they had captured an even greater share of national productivity and growth of the sort outlined by these models? If you think Trumpism and populism are bad, those divides might have produced an even stronger and more enduring backlash. Blue progressive America would be even more concentrated, surrounded by an even larger sea of Red.
That’s something to keep in mind, even as activists in places like the Bay Area, Seattle, and Portland work hard to overcome onerous land-sure restrictions that have limited the supply of affordable housing. Were it not for those regulations, we’d likely be an even more spatially unequal and divided nation than we are today.