June 20, 2018 | ° F

O'BRIEN: Zoning regulations choking U.S. growth


Opinions Column: Policy Over Politics


connorobrien

A decade after the housing bubble burst and sent the global economy into a tailspin, America finds itself in the midst of a different kind of housing crisis, one that takes aim directly at the poor and silently imposes immense costs on the national economy.

No, there is not another looming crisis on Wall Street, but one that strikes at the heart of the “Main Street Economy”: the cost of housing is becoming unaffordable for so many Americans. 

There is perhaps no city in America that better exemplifies this crisis than San Francisco. A year-end report from the real estate search engine Abodo revealed the median one-bedroom rental in the city fetches more than $3,000 per month. Living in the city has become a luxury only the well-off can enjoy, as purchasing a median-priced home in San Francisco now requires an annual income of at least $303,000. More broadly, rent is skyrocketing around the country, dwarfing rates of inflation and wage growth. In June 2017, the Department of Labor showed that rent had climbed 18 percent in the previous five years.

Why is this happening? Many economists say the primary culprit is the excessive use of zoning regulations. For the last century, cities and towns have used these policies to soften some of the ugly side effects of rapid industrialization. They used zoning to separate residential and commercial areas or address environmental concerns. Today, zoning laws limit the height and width of buildings, attach parking requirements to new housing units or require new construction fit with an area’s architectural style. Often, they either directly or effectively prohibit the construction of affordable housing. In combination with burdensome permitting processes, these laws make it too expensive to build much at all, let alone keep up with the housing demands of an expanding population. Even as the national economy sees solid growth and low unemployment, housing construction remains slow.  

While typically issued under the guise of legitimate environmental or social concerns, these regulations are often really efforts by existing homeowners to boost their own personal wealth. By restricting the supply of housing, property values skyrocket. Since the housing stock cannot expand enough to match increased demand, rent prices rise.  

While the benefits of these policies go almost exclusively to the upper-middle class and rich, the adverse effects fall squarely on the poor. As rents rise, the poor are priced out of their own cities when wages cannot keep up. With cities and towns across the country engaging in this “exclusionary zoning,” mobility has plummeted to record lows. The poor and working class simply have nowhere to go. 

This trend is cutting off what has historically been one of the most important pathways out of poverty in America. In the past, the poor have been able to pull themselves upward by migrating to booming cities offering higher wages and greater opportunity. But these days, workers cannot afford to move because entry-level rent in so many urban areas is unaffordable. This has two big consequences for those living paycheck to paycheck. First, it forces tenants to fork over a higher share of their income to rent, a share that has reached a record high. Second, it cuts off a critical vehicle for wage growth. Estimates of the overall effect this trend has on economic growth are staggering. The Brookings Center on Regulation and Markets produced a study that calculated that significantly reducing zoning restrictions could increase GDP by 9.5 percent.  

Unfortunately, this national problem probably cannot be solved on a national level. Zoning decisions are almost always made locally by city councils or commissions, making it difficult for federal authorities to force change. Former President Barack Obama and his top economist Jason Furman took an interest in this issue late in Obama’s second term, but the federal government could not go much further than making recommendations and providing incentives for cities to reform themselves.

Ultimately, fixing this problem may require a cultural change that makes people more cognizant of the adverse effects excessive zoning restrictions have on the poor, but there are steps that state and local governments can take to make issuing new restrictions more difficult. Perhaps we can look to Houston, Texas as a model for reform. Houston does not have zoning at all, instead piecing together other light-touch policies to address environmental and social problems. It should be no surprise that Houston and other Texas cities with few zoning restrictions are much more affordable than their coastal counterparts, attracting economic migrants from all over the country. 

While this path may not satisfy the aesthetic tastes of the country’s upper-middle class, it will do the far more important job of creating a more broadly-prosperous America in which people are free to move in search of opportunity.  

Connor O'Brien is a School of Arts and Sciences junior majoring in economics. His column, "Policy Over Politics," runs on alternate Thursdays. 

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Connor O'Brien

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