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 re- strictions 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."
Urbanization causes agglomeration benefits. Larger cities with high-tech industry get even more productivity increases.
New York (finance and business center) and Bay area (Silicon Valley) had a good start before others and started collecting people and companies around the country.
I always wonder how big the impact of housing as an Investment Class has on the housing market.
Without any data to back this up, I feel that much of the price inflation around the world housing markets is due to money flowing into the housing market that is fleeing countries, taxation or instability in general. Can anyone more knowledgeable refute this?
I've never understood why people assume that sort of investment is going to be going to the housing market in particular, especially when it goes along with complaints of absentee foreign landlords and unoccupied housing. Surely even if you're fleeing instability you still want to make the best investments you can, and refusing to rent property or investing in already overactive markets rather than somewhere else is just leaving money on the ground. I could definitely be wrong, but I suspect many people assuming otherwise have neither data nor theory to back that up.
I'm no expert, but I think this is a "known bug". Russian oligarchs buying property in London, for instance, is a big reason for that market's insane prices.
One 'solution' is property taxes, which disincentivizes buying property that you leave unoccupied. Planet Money had a good episode on the property tax and how it's a surprisingly effective tax.
...cities like New York, San Francisco and San Jose...experienced some of the strongest growth in labor productivity over the last five decades. These cities also adopted land use restrictions that significantly constrained the amount of new housing that can be built.... which has significantly reduced the elasticity of housing supply...
Umm, so why doesn't the invisible hand intent people to grow elsewhere instead?
This could be interpreted as a snide comment but it's the opposite: I strongly believe in regulation but could someone with an Austrian-economist bent explain why this doesn't happen?
It has, huge chunks of the US have moved to the sun belt. Between 2010 and 2015, 500k people moved from New York State to Texas - more moved to Florida etc.
Yet those places aren't seeing the same tech boom that the Bay Area is. Texas has tech in its economy (I have lived in Austin, and from SV have done business with Texas tech companies) but its economy is more dependent on extractive industries (oil/gas and ag) than California.
My point is that classical economics says that if the Bay Area becomes overpriced (the cost of doing business exceeds benefits) then plausible alternatives will spring up.
I am the opposite of somebody with a Austrian-economist bent but I think I can predict the answer, because is always the same: government intervention.
My opinion would be the opposite. It seems to me that the laws that constrain building are, in part (not totally, obviously there are other bad motivations), trying to defend the area against what is basically a blind process of feedback.
But if that's true, shouldn't people who find the Bay Area too expensive/too highly regulated be turning, say, Cleveland into a new high tech Mecca?
It's not like the Bay Area is invincible. It nuked Boston's once-dominant 128 tech empire, but has been losing ground in the life sciences to Boston/Cambridge (and never made a dent in La Jolla).
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 re- strictions 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."