One disconnect in the American economy these days involves the thousands of high-paying jobs in cities such as New York, Boston, Seattle and San Francisco without workers to fill them. One culprit: housing shortages caused by zoning and other restrictions that make it impossible, or too expensive, for workers to move to these cities to take those jobs.
According to one widely cited study, this housing shortage has reduced economic output by 9 percent, costing the average American household $6,700 in forgone income.
The “zoning is strangling the economy” story has caught the attention of conservatives who dislike regulation, liberals who care about affordable housing, and environmentalists who want everyone to live in walkable cities. Not surprisingly, it has also been embraced by the technology sector, where most of the unfilled jobs are found, as well as by construction and real estate industries eager to build and sell more housing.
There's even a nascent political movement — YIMBYism, as in "Yes In My Back Yard-ism" — which in California is on the verge of winning approval for a law allowing the state to override local design and environmental reviews in communities that fail to meet state-set housing production goals.
Before we rush to turn every San Francisco into a Houston, however, we need to ask ourselves whether the better strategy wouldn’t be to move the jobs to workers rather than move the workers to the jobs.
That seems to be the approach taken by one of the country's most successful companies, Amazon.com, which announced this past week that it would spend $5 billion to create a second, "equal" headquarters campus somewhere other than its home base in Seattle. Rather than wait for Seattle to solve its housing and congestion problems, Jeffrey P. Bezos, Amazon's chief executive (and the owner of The Washington Post) decided to help create another Seattle someplace where his company's spectacular growth can be more easily and inexpensively accommodated.
The economic argument for moving the workers to the jobs is that workers are more productive and innovative in companies located in cities dense with people and other companies. Some of the benefits from “agglomeration” have to do with the ease with which companies can find a wider range of competing suppliers. Also the ease with which companies and skilled workers can find each other. In a high-tech economy, in particular, the biggest effect may come from the ease with which workers and firms learn from each other and come up with new ideas and disseminate that know-how.
As urbanist Richard Florida wrote recently in the Atlantic, "superstar cities" such as New York, London and San Francisco produce a disproportionate share of the world's innovation, attract a disproportionate share of capital and investment, have a disproportionate share of cutting-edge companies and are home to a disproportionate share of the world's talent.
“They are not just the places where the most ambitious and most talented people want to be — they are where such people feel they need to be,” Florida wrote.
“Land-use controls that limit the growth of such successful cities means that Americans increasingly live in places that make it easy to build, not in places with higher levels of productivity,” writes Ed Glaeser, the Harvard University economist.
In a recent essay, Glaeser noted that during 30 years within the period of 1880 to 1920, Chicago's population grew by an average of 56,000 each year. That was an era in which American cities were absorbing millions of workers from rural areas where their output was limited. By providing them work in higher productivity factories in cities such as Chicago, the American economy achieved rapid growth.
Today, Glaeser says, that process has been stymied. In contrast to Chicago of the earlier era, he notes, San Francisco’s population during the past 30 years has grown by an average of only 4,200 per year.
For me, however, the idea that everyone should move to super cities is misguided on several levels.
It starts with the faulty economic assumption that workers’ wages are an accurate measure of their productivity. If a graphic designer from San Antonio, earning $14.50 an hour at Clear Channel Communications, moves to San Francisco, where she earns $34.75 an hour at Facebook, economic theory says her output per hour has magically increased 140 percent. Remember, this is the same worker, with the same skills, doing roughly the same work. But now, because she is doing that work at Facebook in San Francisco, the market declares her work to be way more valuable.
One reason for the higher pay is that because housing and everything else costs so much more in San Francisco, Facebook has no choice but to pay more to attract and retain workers. But equally important is the fact that, because of its dominant market position, Facebook can afford to pay higher wages while still earning an above-average profit for its shareholders. A company without such market power in a more competitive industry would have been forced to move elsewhere.
This hardly seems like a strategy for increasing economic output and productivity. Rather, it looks like a strategy for an economy based on imperfect competition and unproductive bidding wars that generates higher incomes and even higher prices — in short, a recipe for inflation.
It is also not clear that loosening zoning restrictions would bring substantial reduction in housing prices. As my George Mason University colleague Tyler Cowen has written, the most likely effect would be an increase in the market value of rezoned land, creating a windfall for current landowners rather than lower prices for housing built at those locations. Even zoning foes such as Glaeser acknowledge that a development tax or "inclusionary zoning" — requiring developers to set aside a certain percentage of a project for affordable housing — would be needed to ensure that looser zoning leads to lower housing prices.
Another false assumption is that no matter how large a metropolitan area is, making it larger and denser will always make it more productive.
For starters, the denser it is, the more expensive it becomes to build housing. Construction costs inevitably rise as buildings get taller, parking garages go deeper, and more activity needs to be displaced during construction. These higher costs eat into whatever productivity gains might accrue otherwise.
More significant, however, are the cost and difficulty of adding infrastructure to handle all those new residents.
To add capacity to its already bursting-at-the-seams subway system, for example, New York spent $4.4 billion and took 10 years to construct the first two-mile stretch (three stops) of a new subway line on the East Side of Manhattan. The next 1.5-mile stretch will cost another $6 billion and won’t be finished before 2027. Given such price tags and time horizons, subway planners are scrambling to find other ways to move more people around. Their latest idea: Increase rush-hour capacity by 25 percent by removing all the seats from subway cars.
Or consider the case of Pennsylvania Station, which greets 600,000 New York commuters and visitors each day with its dingy mix of inconvenience and unpleasantness. After decades of debate and failed initiatives, the city and state are about to begin a $1.6 billion expansion into the old Farley Post Office building next door that will finally provide a pleasant space for riders but won’t add any of the track and tunnel capacity desperately needed to handle more commuters. That new capacity will cost tens of billions of dollars.
And it’s not just New York. San Francisco, Boston, Los Angeles, Seattle — those highly productive cities held out as candidates for further densification — all suffer the same double gridlock: the transportation gridlock that comes from having too many people and too little infrastructure, and the political gridlock that results as voters balk at the astronomical cost and inconvenience needed to solve the transportation gridlock. Techies fantasize that self-driving (or flying!) cars will be the answer, while the crunchy granola crowd looks to Uber and bike lanes. But the millions of people who actually live in these places have a hard time imagining how they could absorb the additional residents, even if there were homes for them to live in.
Ironically, one reason that such cities became such economic engines is that they were viewed as desirable places to live by the well-educated, ambitious professionals who start and populate innovative companies — the “creative class,” as Florida described them. These cosmopolitans have a strong preference for urban centers that offer ethnic diversity, cultural sophistication and walkable neighborhoods with vintage housing stock, good restaurants and an undercurrent of hip and cool. The last place this elite would want to live is in an urban jungle of cement canyons and high-rise towers.
There is an alternative, of course, to making highly productive dense cities even denser: Create more of them.
Even if you accept the idea that the graphic designer will be more productive working for Facebook, there is nothing that prevents Facebook from opening a new campus in a somewhat smaller city with enough hip and cool to attract the creative class. Think of Denver/Boulder, Chicago, Miami. Think of Austin; Ann Arbor, Mich.; and the two Portlands (Oregon and Maine). Think of Nashville, Pittsburgh or Washington, D.C.
Granted, these cities may not have the same concentration of big growing companies, entrepreneurial start-ups and financiers. But the cost of living and doing business in those cities is significantly lower, they still have plenty of room to grow, and they can build additional public infrastructure quicker and cheaper.
In fact, as Amazon’s HQ2 announcement demonstrates, it’s already happening. And it should tell you something that in Seattle, the reaction to Amazon’s announcement was a mixture of concern and relief.
“It gives us a little breathing room to build good mass transit, ensure affordable housing and open up pathways into higher education for the future workforce,” Lisa Herbold, a member of Seattle’s left-leaning city council, told the Seattle Times.
“Not every millennial wants or needs to live in Brooklyn or the Mission [District],” said Joel Kotkin, a professor of urban studies at Chapman University in California. In recent years, he notes, the heavy movement of tech and business service jobs has been to more affordable metro areas such as Nashville and Dallas. And most of those jobs have been in the suburbs.
In addition to moving work to these second-tier cities, there is also the possibility of creating nearby “satellite” cities.
The best example I can think of is right here in Washington. Imagine how many high-wage jobs could be added if there were regular high-speed train service to an expanded Union Station from Baltimore, Richmond and Frederick, where there are still plenty of old industrial buildings and rowhouses that could be turned into affordable and hip urban residences. Train commuting is how New York, London and Paris were able to achieve the economic advantages of agglomeration without having to turn themselves into high-rise jungles. With sufficient investment in infrastructure, other cities could do the same. (Note to Bezos: Check out Baltimore).
I have no doubt that our biggest and most productive cities can and should build more housing — in particular, more affordable middle- and working-class housing for the people who already live there.
Of course, there are limits — economic, political, social — to how much density most people are willing to live with. The point of having a richer and more productive economy is to have more enjoyable lives, and for most of us, that means living in places with human scale, whether that is an urban neighborhood of lofts and brownstones, a leafy streetcar suburb or a wooded exurban acre with plenty of room for a swing set and a vegetable garden.
The best way to create such environments isn’t to prevent people from using zoning and other tools to create the neighborhoods they want. Rather, it is to invest in the public infrastructure necessary to make such choices possible.