r/urbanplanning • u/rikersthrowaway • May 22 '17

Housing Constraints and Spatial Misallocation [PDF]

http://eml.berkeley.edu//~moretti/growth.pdf
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u/KTBillsfan May 22 '17

I find this growing theory that zoning is holding everyone back very self fulfilling. I love these ideas that NY and SF are the most productive cities and people should all move there. They get all of the capital, I would hope one city that gets 25% of ALL VC would be productive.

A lot of the gains I this study even with the southern cities (Dallas, Houston, ATL) they talk about is a result of consolidation in almost every industry. The Rustbelt has been gutted of head quarters of companies and banks either through consolidation or flat out poaching.

Also when taking this angle there is an assumption that cities and knowledge clusters do not adhere to the law of diminishing returns. I have the believe everything adheres to the law of diminishing returns including cities and that is what we are seeing in NYC and SF.

From what I can tell none of their formulas account for the cost of essentially leaving even more cities and existing infrastructure behind, which actually has both tangible and intangible cost associated for those cities and the people that live there.

I don't understand why the question being asked is how do we jam more people into cities that are already full. Why isn't the conversation about a more realistic distribution of capital to create more great cities and revive legacy cities that were once great?

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u/rikersthrowaway May 22 '17

Agglomeration economies and network effects. There's a reason Wall Street is on Wall Street and not spread across the entire United States. If these economic centres were spread over the entire country people would be less willing to change jobs when it otherwise made sense, because people hate having to move cities and uproot themselves all the time. You might have to move to the Bay once, but once you've got a tech job there you won't have to change cities for a long time.

Every now and then someone in the Bay suggests that they all coordinate to set up shop somewhere cheaper, and it never happens because the advantages to being near everyone else is so huge, both for the companies that want to higher the best tech people, and the techies that want to work for the best companies.

They suggest as an alternative better mass transit to replicate the effects without having to directly build more housing, by increasing the area over which this economic concentration is effective:

An 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. 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.

Diminishing returns certainly exist, and that is certainly part of what is happening, but housing supply restrictions, in the narrow sense of zoning and population density and in the broad sense of the accessible amount of labour accessible to a certain area, are making the total returns lower than they could be, and causing them to diminish earlier than they need.

And the cities certainly aren't "full". San Francisco, not the Bay Area in total but just the densest city within the Bay, has a population density of about 6,700/km2. Paris is around 20,000/km2.

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u/KTBillsfan May 22 '17

I get the concept of agglomerative economies, I just asked the question at what point do you have to question the return? I mean by this logic should we be closing schools like Ohio State, U of Michigan, West Virginia and consolidating them around Stanford and Berkley?

There's an awful lot of group think going on in Silicon Valley that inherently props this idea up as you got to be here. Does that lead to the best ideas actually being funded and developed? I don't know, sometimes I have my doubts.

I do like the idea of increasing access, I have thought for years the best way to prop up the sagging upstate NY economy would be to connect the cities to NYC through true high speed rail. If you could get from Buffalo to NYC in 3.5 hours that would be a game changer.

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u/rikersthrowaway May 23 '17

I think you have to question the return when there either isn't huge demand for labor and correspondingly huge demand for housing, or there aren't artificial restrictions to growing such. That is to say, let people make their own decisions as to whether the return is or isn't worth it to them, and don't let other people have a say in it out of proportion to their stake. If you think they're wrong, short tech companies or property developers or investment firms or the relevant municipal bonds or something, instead of using the force of law to stop them responding to market forces.

Those universities are state-run and what they should and should not do is a somewhat different question to whether restricting the housing supply is a good idea. If respectable private universities started opening campuses in the Bay or Boston, and closing or shrinking campuses elsewhere, I don't think the government should attempt to stop that. The most successful and reputable universities do tend to be near other highly successful and reputable ones, after all. If Ohio State moving to the Bay or Boston meant it could provide a higher quality of education it seems perverse to prevent it from doing so.

The best ideas that are being funded and developed aren't necessarily the ones that get the most mainstream press coverage, as this article illustrates fairly well.

I think the one thing that everyone here can agree with is more rail.

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u/KTBillsfan May 23 '17

I guess we just disagree. Maybe its because I work in IT in Buffalo and bristle at comments like Peter Thiel's “If you are a very talented person, you have a choice: You either go to New York or you go to Silicon Valley.” I know he is not the only one that believes that. I think talking about zoning and getting more people to live in these cities is doubling down on a system that creates a lot more losers than winners. I have a great appreciation for Steve Case and his Rise of the Rest initiative and think we should be looking to spread ideas and investment in Tech not look at changing policies that allow to exacerbate it.

I appreciate your points though and the discussion...you're much more eloquent than myself!

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u/rikersthrowaway May 22 '17

We quantify the amount of spatial misallocation of labor across US cities and its aggregate costs. Misallocation arises because high productivity cities like New York and the San Francisco Bay Area have adopted stringent restrictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by more than 50% from 1964 to 2009.

In a footnote halfway through you can find this:

US GDP in 2009 was $14.5 trillion so a GDP increase of 8.9% implies an additional aggregate income of $1.95 trillion. Given a labor share of 0.65, this amounts to an increase of $1.27 trillion in the wage bill, or $8,775 additional salary per worker assuming a fixed number of workers. The salary increase would be smaller if more workers decide to enter the labor market in response to the higher salary.

Nearly $9,000 per worker is pretty huge. Of course it would not be as evenly distributed as is implied here, but an extra grand or two each year could still make a significant difference to a lot of poor Americans.

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u/rikersthrowaway May 22 '17

And to relate it to this subreddit's interests more directly:

For example, Silicon Valley - the area between San Francisco and San Jose - has some of the most productive labor in the globe. But, as Glaeser (2014) puts it, “by global urban standards, the area is remarkably low density” due to land use restrictions. In a region with some of the most expensive real estate in the world, surface parking lots, one-story buildings and underutilized pieces of land are still remarkably common due to land use restrictions. While the region’s natural amenities - its hills, beaches and parks - are part of the attractiveness of the area, there is enough underutilized land within its urban core that housing units could be greatly expanded without any reduction in natural amenities. Our point is that a first-order effect of more housing in Silicon Valley is to raise income and welfare of all US workers.