How Local Housing Regulations Smother the U.S. Economy
If you live in a coastal city like New York, Boston or San Francisco, you know that the cost of housing has skyrocketed. This housing crisis did not happen by chance: Increasingly restrictive land-use regulations in the last half-century contributed to it.
But what appears to be several local housing crises is actually a much more alarming national crisis: Land-use restrictions are a significant drag on economic growth in the United States.
The creeping web of these regulations has smothered wage and gross domestic product growth in American cities by a stunning 50 percent over the past 50 years. Without these regulations, our research shows, the United States economy today would be 9 percent bigger — which would mean, for the average American worker, an additional $6,775 in annual income.
For most of the 20th century, workers moved to areas where new industries and opportunities were emerging. This was the locomotive behind American prosperity. Agricultural workers moved from the countryside to booming cities like Pittsburgh and Detroit. In the Great Migration, some six million African-Americans left the South for manufacturing jobs in cities like Chicago and Buffalo.
What allowed this relocation to places with good-paying jobs that lifted the standard of living for families? Affordable housing.
Today, this locomotive of prosperity has broken down. Finance and high-tech companies in cities like New York, Boston, Seattle and San Francisco find it difficult to hire because of the high cost of housing. When an unemployed worker in Detroit today finds a well-paying job in San Francisco, she often cannot afford the cost of housing there.
New housing construction in America’s most dynamic cities faces growing regulatory costs, delays and enormous opposition from neighboring homeowners. Since the 1970s, a property-rights revolution — what critics call Nimbyism, from “not in my back yard” — has significantly reduced the development of new housing stock, especially in cities where the economy is strongest.
Look at Silicon Valley. It has some of the most productive labor in the nation, and some of the highest-paying jobs, but remarkably low density because of land-use regulations. Surface parking lots, one-story buildings and underutilized plots of land are still remarkably common because of increasingly draconian zoning restrictions. Building anything taller than three stories, even on empty lots next to a train station, draws protests from homeowners.
And once a project is approved, it faces an endless series of appeals and lawsuits that can add years of delay. Appeals are remarkably easy and affordable to file and can be done anonymously. This basically gives every neighbor a veto over every new project, regardless of how desirable the project might be. It’s as if BlackBerry had veto power over whether Apple should be allowed to sell a new iPhone.
In the case of the Treasure Island housing project in San Francisco — a model of sustainable development that took over 15 years of planning review and community engagement to secure approval — one lawsuit halted progress for three years.
To make things worse, well-intentioned regulations are often used by neighborhood groups to further delay projects. The California Environmental Quality Act, for example, was written to protect green areas from pollution and degradation from large industrial projects, like new refineries or power plants. Its main effect today is making urban housing more expensive. It has added millions of dollars of extra costs to a sorely needed high-rise on an empty parking lot on Market Street in downtown San Francisco.